-----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, OdZ8yFDdECnaA0LhxEbj5tBCcwjEnqv01kU5ySu3kKO+8P8roV6PxCSwPRURVAIz rDEayNk51O1/duNMiErOtw== 0000010427-98-000017.txt : 19980324 0000010427-98-000017.hdr.sgml : 19980324 ACCESSION NUMBER: 0000010427-98-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980323 SROS: NONE 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-K SEC ACT: SEC FILE NUMBER: 001-04105 FILM NUMBER: 98571292 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: 7163386000 MAIL ADDRESS: STREET 1: ONE BAUSCH & LAMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 10-K 1 1997 10-K 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 27, 1997 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 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 [Cover page 1 of 2 pages] 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 24, 1998) of the voting stock held by non-affiliates of the registrant was $2,476,057,910. 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 24, 1998 was 55,569,003, consisting of 54,892,225 shares of Common Stock and 676,778 shares of Class B stock, which are identical with respect to dividend and liquidation rights, and vote together as a single class for all purposes. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II The Bausch & Lomb 1997 Annual Report to Shareholders for fiscal year ended December 27, 1997 ("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 18, 1998 ("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. [Cover page 2 of 2 pages] 1 TABLE OF CONTENTS PART I PAGE Item 1. Business 2 Item 2. Properties 5 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Shareholders 7 PART II Item 5. Market for Bausch & Lomb Incorporated's Common Stock and Related Shareholder Matters 8 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 8 Item 8. Financial Statements and Supplementary Data 8 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 8 PART III Item 10. Directors and Executive Officers of Bausch & Lomb Incorporated 9 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 10 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 11 Signatures 12 Schedules S-1 Exhibit Index E-1 Exhibits (Attached to this Report on Form 10-K) 2 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Bausch & Lomb Incorporated is a world leader in the development, manufacture and marketing of products that go in or on 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 1997 are discussed below. The year ending December 27, 1997 set the stage for growth as significant progress was made in transforming the company from a diversified healthcare and optics company to one focused on global eye care. Reported revenues for 1997 were $1,916 million, a decrease of $11 million or less than 1% from 1996. Net earnings for 1997 amounted to $49 million, or $0.89 per diluted share, compared to $83 million or $1.47 per diluted share, reported in 1996. Significant operational matters affecting both periods included restructuring charges, disposition of non-core businesses and litigation charges. In early 1997, the company's board of directors approved plans to further restructure all business segments as well as certain corporate administrative functions. This restructuring effort is expected to significantly reduce the company's fixed cost structure and realign the organization to meet its strategic objectives. These actions resulted in the recording of pre-tax restructuring charges of $72 million in 1997. The program is expected to generate annual pre-tax savings of approximately $100 million by 1999. Savings will be generated from projects related to the company's manufacturing processes, including plans to phase out sunglass component manufacturing at the company's Frame Center in Rochester, New York. Savings will also come from restructuring administrative functions. The projects are expected to result in improved operating margins, particularly in the eyewear business, and greater flexibility to invest in growth opportunities. In April 1997, the company acquired the assets and trademarks of the Killer Loop eyewear brands from Benetton Sportsystem of Italy in a transaction valued at approximately $43 million. Prior to the acquisition, the company had an exclusive agreement to market Killer Loop eyewear products. The company announced in November 1997 that it had entered into an administrative Consent Order with the Securities and Exchange Commission (SEC), bringing to a close the SEC's three-year investigation into certain contact lens and sunglass transactions that were improperly recorded as sales for the 1993 fiscal year. The company did not admit or deny liability and no fines or penalties were imposed. In a related matter, the company, without admitting any liability, agreed to pay $42 million in cash to settle a three- year-old consolidated shareholder class action suit where it was claimed that the company knowingly misrepresented its 1993 earnings. The company's insurance carrier will pay a substantial portion of the cost of the settlement. The company recorded a pre-tax charge of $21 million in the fourth quarter to cover the cost of the proposed settlement. In December 1997, the company sold its Thin Film Technology Division to Applied Image Inc. for $9 million. There was no material gain or loss on the transaction. The division manufactured and applied optical thin film coatings for various eyewear, lighting, optical, commercial and industrial applications. In late 1997, the company secured a $900 million 364-day revolving credit facility and a $300 million five-year revolving credit facility. These new facilities are being used to support borrowings to fund 3 the acquisitions of Storz and Chiron Vision, which were consummated subsequent to fiscal year end and are described below, as well as to provide funds for operations of the existing businesses. The interest rate applicable to borrowing under the agreements is based on the LIBOR rate, or, at the company's option, the higher of several other common indices. No debt was outstanding under these agreements at December 27, 1997. On December 29, 1997, the company completed the acquisition of Chiron Vision Corporation (Chiron Vision), the ophthalmic products unit of Chiron Corporation, for $300 million in cash. Chiron Vision researches, develops and manufactures innovative products that improve results in cataract and refractive surgery, and the treatment of progressive eye diseases. On December 31, 1997, the company also completed the acquisition of Storz Instrument Company (Storz), a subsidiary of American Home Products Corporation, for $380 million in cash. Storz is a leading international manufacturer and distributor of high quality ophthalmic surgical instruments, surgical and diagnostic equipment, intraocular lens implants and ophthalmic pharmaceuticals. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Information concerning sales, business segment earnings and identifiable assets attributable to each of Bausch & Lomb's reportable industry segments is set forth on pages 26-30 and 46- 47 of the Annual Report and are incorporated herein by reference. (c) NARRATIVE DESCRIPTION OF BUSINESS Industry Segments. Bausch & Lomb's operations are classified into four industry segments: vision care, eyewear, pharmaceuticals and healthcare. Below is a description of each segment and information to the extent that it is material to an understanding of the company's business taken as a whole. Additional information can be found on pages 8-21 of the Annual Report and are incorporated herein by reference. Vision Care - The vision care segment includes contact lenses and lens care products. Vision care products are marketed to licensed eye care professionals, pharmaceutical retailers and mass merchandisers by the company's own sales force and distributors. Eyewear - The eyewear segment includes premium-priced sunglasses and vision accessories. Eyewear products are distributed worldwide through the company's direct sales force, as well as through distributors, wholesalers and manufacturer's representatives. These products are marketed through optical stores, sunglass specialty stores, department stores, catalog showrooms, mass merchandisers and sporting goods stores. 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) 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. Healthcare - Included in this segment are businesses which provide purpose-bred laboratory animals, pathogen-free eggs, biomedical products and services, hearing aids and skin care products. Biomedical products are sold through the company's own sales force to the scientific research community. Hearing aids are distributed primarily through the Miracle-Ear franchise system and company-owned stores. Skin care products are sold through the company's sales force and brokers to drug stores, food stores, mass merchandisers, warehouse clubs and the military class of trade. Suppliers and Customers. Materials and components in all four of the company's industry segments are purchased from a wide variety of suppliers and the loss of any one supplier would not adversely affect the company's business to a significant extent. No material part of the company's business taken as a whole 4 is dependent upon a single or a few customers. However, in the eyewear segment approximately 13% of segment sales are attributable to Sunglass Hut International and in the vision care segment approximately 10% of segment sales are attributable to Wal-Mart. Patents, Trademarks and Licenses. While in the aggregate the company's patents are of material importance to its businesses taken as a whole, no single patent or patent license or group of patent licenses relating to any particular product or process is material to any industry segment. The company actively pursues technology development and acquisition as a means to enhance its competitive position in its business segments. In the vision care segment, Bausch & Lomb has developed significant consumer and eye care professional recognition of products sold under the Bausch & Lomb, ReNu, ReNu MultiPlus, Sensitive Eyes, SeeQuence, Medalist, Boston, Optima FW and SofLens66 trademarks. Ray-Ban, Revo, Wayfarer, Arnette and Killer Loop are trademarks receiving substantial consumer recognition in the eyewear segment. Bausch & Lomb and Dr. Mann Pharma are trademarks receiving substantial consumer recognition in the pharmaceuticals segment. In the healthcare segment, Miracle-Ear, Mirage, Curel, Soft Sense and Charles River are trademarks receiving significant consumer and industry professional recognition. Seasonality and Working Capital. Some seasonality exists for sunglasses in the eyewear segment. The accumulation of inventories of such products in advance of expected shipments reflects the seasonal nature of the products. In general, the working capital practices followed in each of the company's industry segments are typical of those businesses. Competition. Each industry is highly competitive in both U.S. and non-U.S. markets. In all of its segments, Bausch & Lomb competes on the basis of product performance, quality, technology, price, service, warranty and reliability. In the eyewear segment, the company also competes on the basis of style. Research and Development. Research and development constitutes an important part of Bausch & Lomb's activities. In 1997, the company's research and development expenditures totaled $67 million, as compared to $75 million in 1996 and $66 million in 1995. Environment. Although Bausch & Lomb is unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on its capital expenditures, earnings or competitive position. Capital expenditures for property, plant and equipment for environmental control facilities were not material during 1997 and are not anticipated to be material for 1998 or 1999. Year 2000 Software Compliance. Information regarding the identification and resolution of year 2000 data and processing issues is set forth on page 36 of the Annual Report and such information is incorporated herein by reference. Number of Employees. Bausch & Lomb employed approximately 13,000 persons as of December 27, 1997. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Information as to sales, operating earnings and identifiable assets attributable to each of Bausch & Lomb's geographic regions, and the amount of export sales in the aggregate, is set forth on pages 31-32 and 46 of the Annual Report and is incorporated herein by reference. 5 ITEM 2. PROPERTIES The principal manufacturing, distribution and production facilities and other important physical properties of Bausch & Lomb at March 1, 1998 are listed below and are grouped under the principal industry segment to which they relate. Certain properties relate to more than one industry segment. Except where otherwise indicated by footnote, all properties shown are held in fee and are not subject to major encumbrances. Eyewear Manufacturing Plants Distribution Centers Beijing, China (2) San Clemente, CA (2) Bhiwadi, India Sunnyvale, CA (2) Waterford, Ireland (2) San Antonio, TX Rochester, NY (Frame Center) Richmond Hill, Ontario, San Antonio, TX Canada (2) New Territories, Hong Kong (2) Hoofdorp, Netherlands (2) Nuevo Laredo, Mexico (2) North Ryde, Australia (2) Guangzhou, China (2) Healthcare Production Facilities Hollister, CA (2) Houston, TX Lebanon, CT Brussels, Belgium Preston, CT St. Constant, Canada Storrs, CT Margate, England Voluntown, CT West Sussex, England Summerland Key, FL Lyon, France (2) Colbert, GA (2) St. Aubin-les-Elbeuf, France Eureka, IL St. Germain, France (2) Roanoke, IL Extertal, Germany Windham, ME Kisslegg, Germany Southbridge, MA (2) Sulzfeld, Germany West Brookfield, MA (2) Calco, Italy Wilmington, MA Atsugi, Japan Portage, MI Hino, Japan O'Fallon, MO Tskuba, Japan (2) Raleigh, NC Tuhuacan, Mexico (2) Pittsfield, NH Someren, Netherlands Newfield (Lakeview), NJ Barcelona, Spain (2) Stone Ridge (Kingston), NY Uppsala, Sweden (2) Charleston, SC (2) Budapest, Hungary (2) Prague, Czech Republic (2) Manufacturing Plants Distribution Centers Golden Valley, MN (1) Wilmington, MA (2) Kitchener, Ontario, Canada (2) Golden Valley, MN (1) Preston, CT (2) 6 Pharmaceuticals/Surgical Manufacturing Plants Distribution Centers Tampa, FL Tampa, FL Berlin, Germany Bracknell, United Kingdom (2) Claremont, CA (2) Heidelberg, Germany (2) Irvine, CA Clearwater, FL St. Louis, MO Artarmon, Australia (2) Lyon, France (2) Vision Care Manufacturing Plants Distribution Centers Sarasota, FL (1) Rochester, NY (Optics Center) Wilmington, MA (2) (1)(2) Rochester, NY (Optics Center) Greenville, SC (2) (1)(2) Lynchburg, VA (2) Greenville, SC Richmond Hill, Ontario, Porto Alegre, Brazil Canada (2) Beijing, China (2) Guangzhou, China (2) Bhiwadi, India Hoofdorp, Netherlands (2) Waterford, Ireland (2) Livingston, Scotland (2) Milan, Italy Umsong-Gun (Seoul), Korea Livingston, Scotland (2) Barcelona, Spain Hastings, United Kingdom Madrid, Spain (2) North Ryde, Australia (2) Corporate Facilities Rochester, NY One Bausch & Lomb Place (2) Optics Center (1) (2) 1295 Scottsville Road (2) (1) This facility is financed under a tax-exempt financing agreement (2) This facility is leased Bausch & Lomb considers that its facilities are suitable and adequate for the operations involved. All facilities are being productively utilized. 7 ITEM 3. LEGAL PROCEEDINGS 1. Since June of 1994, the company has defended several shareholder actions against the company, its former Chief Executive Officer and Chairman, Daniel E. Gill, and four other officers, alleging that the defendants made false and misleading statements about expected financial results. These actions have been consolidated in the United States District Court for the Western District of New York. On November 17, 1997, the company announced that it had entered into a memorandum of understanding with counsel representing the plaintiffs, agreeing to pay $42 million in full settlement of all claims. In entering into this proposed settlement, the company and the individual defendants have continued to deny all liability, but have settled in order to avoid the expense and burden of further litigation. The claimants include purchasers of the company's common stock from December 13, 1993 through January 25, 1995. The proposed settlement is subject to making appropriate notice to potential class members and a review by the Court of the fairness and adequacy of the terms of the settlement. The company's insurance carriers have agreed to contribute substantially toward this settlement and the company has recorded a one-time charge against 1997 fourth-quarter earnings of $21 million or $13 million after taxes. 2. Since December 1994, the company has been the subject of an investigation by the Securities and Exchange Commission (SEC) principally focused on the accounting treatment of (i) a 1993 contact lens sales program and (ii) Asian sunglass sales from late 1992 through early 1994. This investigation was concluded when the company, without admitting or denying liability, entered into a Consent Order with the SEC, which was announced on November 17, 1997. The Order imposed no financial penalties on the company. 3. The company has stipulated to certification by a New York State Supreme Court of a nationwide class of purchasers of Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eye Wash between May 1, 1989 and June 30, 1995. This action arose out of matters commenced in 1994 and 1995 alleging that the company misled consumers in its marketing and sale of those products. Management vigorously defends the company's practices. 4. 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 of 21 other states, and (ii) individual actions pending in California and Tennessee state courts. The company defends its policy as a lawfully adopted means of ensuring effective distribution of its products and safeguarding consumers' health. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS Inapplicable. 8 PART II ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The sections entitled "Dividends" and "Quarterly Stock Prices" and table entitled "Selected Financial Data" on pages 34, 37 and 63, respectively, of the Annual Report are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The table entitled "Selected Financial Data" on page 63 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 26-36 of the Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The section entitled "Derivative Financial Instruments" on pages 42 and 58-59 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 sections entitled "Report of Independent Accountants" and "Quarterly Results" on pages 38-61, 62 and 37 of the Annual Report, respectively, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF BAUSCH & LOMB INCORPORATED Information with respect to non-officer directors is included in the Proxy Statement on pages 3-7 and such information is incorporated herein by reference. Set forth below are the names, ages (as of March 1, 1998), 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 H. Waltrip (60) Chairman since January 1997; Chairman and Chief Executive Officer (1996); Chairman of Technology Solutions Company since 1993; Chief Executive Officer, Technology Solutions Company (1993-1995); Chairman and Chief Executive Officer of Biggers Brothers, Inc. (1991-1993). William M. Carpenter (45) Chief Executive Officer since January 1997; President and Chief Operating Officer (1995-1996); Executive Vice President, Global Business Manager, Eyewear (1995-1996); President and Chief Executive Officer, Reckitt & Colman, Inc. (1994-1995); President and Chief Operating Officer, Reckitt and Colman, Inc. (1992-1994). Dwain L. Hahs (45) Executive Vice President and President - Eyewear since April 1997; Senior Vice President, International Operations (1996-1997); Vice President and President Europe, Middle East and Africa Division (1994-1996); Vice President Field Operations Europe, Middle East and Africa Division (1992-1994). Carl E. Sassano (48) Executive Vice President and President - Vision Care since January 1997; Senior Vice President and Global Business Manager, Vision Care (1996); Global Business Manager, Contact Lens Products (1994-1996); Senior Vice President and President, Contact Lens Division (1994-1996); Senior Vice President and President, Polymer Technology Corporation, a subsidiary of the company (1992- 1994). Daryl M. Dickson (46) Senior Vice President, Human Resources since November 1996; Vice President Human Resources (Foods group), Quaker Oats Company (1993- 1996); Sector Director Organization, Staffing and Development, AlliedSignal Aerospace, AlliedSignal Inc. (1991-1993). James C. Foster (47) Senior Vice President since 1994 and President and Chief Executive Officer of Charles River Laboratories, Inc., a subsidiary of the company, since 1991; Vice President (1991-1994). Stephen C. McCluski (45) Senior Vice President and Chief Financial Officer since 1995; Vice President and Controller (1994); President, Outlook Eyewear Company (1992-1994). Thomas M. Riedhammer (49) Senior Vice President and President, Worldwide Pharmaceuticals since February 1998; Senior Vice President and President, Worldwide Pharmaceutical, Surgical, and Hearing Care Products (1994-1998); Vice 10 President (1993-1994); President, Worldwide Pharmaceuticals (1994); President, Pharmaceutical Division (1992-1993). Robert B. Stiles (48) Senior Vice President and General Counsel since June 1997; Staff Vice President and Assistant General Counsel (1994-1997); Assistant General Counsel (1991-1994). Jurij Z. Kushner (47) Vice President, Controller since 1995; Vice 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 10-13, 14-16, 17-18, 1- 2, 16, and 18, 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 Management" in the Proxy Statement on page 8 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 of Control Arrangements" on page 18 of the Proxy Statement is incorporated herein by reference. 11 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 62 Balance Sheet at December 27, 1997 and December 28, 1996 39 For the years ended December 27, 1997, December 28, 1996 and December 30, 1995: Statement of Earnings 38 Statement of Cash Flows 40 Notes to Financial Statements 41-61 2. Filed herewith Report of Independent Accountants on Financial Statement Schedules Exhibit 24 For the years ended December 27, 1997, December 28, 1996 and December 30, 1995: SCHEDULE II- Valuation and Qualifying Accounts Page S-1 All other schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (b) REPORTS ON FORM 8-K Inapplicable. (c) ITEM 601 EXHIBITS Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. Each of Exhibits (10)-a through (10)-w 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. 12 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 23, 1998 By:/s/William M. Carpenter William M. Carpenter President 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 23, 1998 By:/s/William M. Carpenter William M. Carpenter President and Chief Executive Officer Principal Financial Officer Date: March 23, 1998 By:/s/ Stephen C. McCluski Stephen C. McCluski Senior Vice President and Chief Financial Officer Controller Date: March 23, 1998 By:/s/ Jurij Z. Kushner Jurij Z. Kushner Vice President and Controller Directors Franklin E. Agnew William Balderston III 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 23, 1998 By:/s/Robert B. Stiles Robert B. Stiles Attorney-in-Fact Bausch & Lomb Incorporated SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Reserves for Doubtful Accounts (Dollar December 27, December 28, December 30, amounts in thousands) 1997 1996 1995 Balance at beginning of year $ 13,278 $ 11,232 $ 16,830 Activity for the year: Provision charged to income 4,310 8,556 8,253 Reductions/(additions) resulting from divestiture/ (acquisition) activity 68 (399) (821) Accounts written off (5,179) (6,899) (10,194) Recoveries on accounts previously written off 1,538 788 634 Reclassifications -- -- (3,470) ------------------------------------ Balance at end of year $ 14,015 $ 13,278 $ 11,232 ------------------------------------ ------------------------------------ [FN] Represents reserves related to trade receivables which have been reclassified to Notes Receivable. 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 28, 1986 (filed as Exhibit (3)-b to the company's Annual Report on Form 10-K for the fiscal year ended December 28, 1986, 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 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). (10)-a Change of Control Employment Agreement with certain executive officers of the company (filed as Exhibit (10)-a to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-b Change of Control Employment Agreement with certain executive officers of the company (filed as Exhibit (10)-b to the company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, No. 1-4105, and incorporated herein by reference). (10)-c Amended and restated Supplemental Retirement Income Plan II (filed as Exhibit (10)-f to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-d Supplemental Retirement Income Plan III (filed as Exhibit (10)-g to the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (10)-e The 1982 Stock Incentive Plan (filed as Exhibit III- F to the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1982, File No. 1-4105, and incorporated herein by reference). (10)-f Amendment to the 1982 Stock Incentive Plan (filed as Exhibit (10)-i to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and Incorporated herein by reference). (10)-g Amendment to the 1982 Stock Incentive Plan (filed as Exhibit (10)-k to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and Incorporated herein by reference). (10)-h The 1987 Stock Incentive Plan (filed as Exhibit I.B to the company's Registration Statement on Form S-8, File No. 33- 15439, and incorporated herein by reference). (10)-i Amendment to the 1987 Stock Incentive Plan (filed as Exhibit (10)-n to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and Incorporated herein by reference). (10)-j Amendment to the 1987 Stock Incentive Plan (filed as Exhibit (10)-n to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and Incorporated herein by reference). (10)-k Amended and restated 1990 Stock Incentive Plan (filed as Exhibit (10)-y to the company's Annual Report on form 10-K for the fiscal year ended December 28, 1996, File No. 1- 4105, and Incorporated herein by reference). (10)-l Amended and restated Director Deferred Compensation Plan (filed as Exhibit (10)-bb to the company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, File No. 1-4105, and incorporated herein by reference). (10)-m Amended and restated Executive Deferred Compensation Plan (filed as Exhibit (10)-cc to the company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, File No. 1-4105, and incorporated herein by reference). (10)-n Amended and restated Executive Benefit Plan (filed as Exhibit (10)-t 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)-o Executive Security Program (filed as Exhibit (10)-s to the company's Annual Report on Form 10-K for the fiscal year ended December 30, 1989, File No. 1-4105, and incorporated herein by reference). (10)-p 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)-q 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)-r Stock Purchase Agreement by and between Bausch & Lomb Incorporated and Chiron Corporation (filed as Exhibit 2(a) to the company's Current Report on Form 8-K dated January 13, 1998, File No. 1-4105, and incorporated herein by reference). (10)-s Purchase Agreement by and among American Cyanamid Company, American Home Products Corporation and Bausch & Lomb Incorporated (filed as Exhibit 2(b) to the company's Current Report on Form 8-K dated January 13, 1998, File No. 1-4105, and incorporated herein by reference). (10)-t Amended and restated Charles River Laboratories, Inc. Executive Life Insurance/Supplemental Retirement Income Plan (filed herewith). (10)-u Agreement with William H. Waltrip (filed herewith). (10)-v Corporate Officer Separation Plan (filed herewith). (10)-w EVA Management Incentive Compensation Plan (filed herewith). (11) Statement Regarding Computation of Per Share Earnings (filed herewith). (12) Statement Regarding Computation of Ratio of Earnings to Fixed Charges (filed herewith). (13) The Bausch & Lomb 1997 Annual Report to Shareholders for the fiscal year ended December 27, 1997 (filed herewith). With the exception of the pages of the Annual Report specifically incorporated by reference herein, the Annual Report is not deemed to be filed as a part of this Report on Form 10-K. (21) Subsidiaries (filed herewith). (23) Report of Independent Accountants on Financial Statement Schedules and Consent of Independent Accountants (filed herewith). (24) Power of attorney with respect to the signatures of directors in this Report on Form 10-K (filed herewith). (27) Financial Data Schedule (filed herewith). EX-10 2 EXHIBIT (10)-T EXHIBIT (10)-t THE CHARLES RIVER LABORATORIES, INC. EXECUTIVE LIFE INSURANCE/ SUPPLEMENTAL RETIREMENT INCOME PLAN Amended and Restated Effective March 15, 1988 1. AMENDMENT AND RESTATEMENT. This Plan amends and restates, effective March 15, 1988, The Charles River Laboratories, Inc. Executive Life Insurance/Supplemental Retirement Income Plan (the "Plan") (previously referred to in some prior documents as The Charles River Breeding Laboratories, Inc. Executive Supplemental Insurance Plan). This Plan is the only such plan maintained by Charles River Laboratories, Inc. 2. PURPOSE. Charles River Laboratories, Inc. (the "Company") has adopted this Plan for a select group of management employees in order to (a) attract, retain and motivate qualified management employees, (b) facilitate the retirement of such employees, and (c) in certain cases, provide survivor income for the beneficiaries of such employees. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deterred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and shall be interpreted and administered to the extent possible in a manner consistent with that intent. 3. ADMINISTRATION. The Plan will be administered by a Committee of not less than three officers or directors of the Company who will be appointed from the Board of Directors of the Company and who will serve at the pleasure of the Board. The Committee will have authority to interpret the provisions of the Plan and decide all questions and settle all disputes which may arise in connection with the Plan, and may establish its own operative and administrative rules and procedures in connection therewith. All interpretations, decisions and determinations made by the Committee will be binding on all persons concerned. No member of the Committee who is a Participant in this Plan may vote or otherwise participate in any decision or act with respect to a matter relating solely to himself (or to himself and his beneficiaries). 4. PARTICIPATION. The Participants in the Plan will be such management employees as may be selected from time to time by the Committee. Each Participant will be designated by the Committee as belonging to either Group A or Group B for purposes of determining the Participant's Vested Percentage under Section 7(c) below. A Participant may be moved from Group B to Group A at the discretion of the Committee, but no Participant shall be moved from Group A to Group B. The Committee may terminate an employee's participation in the Plan (while he is still an employee), but no such action will reduce the Company's obligation to any Participant below the amount to which he would be entitled under the Plan as in effect immediately prior to such action if his employment then terminated. 5. LIFE INSURANCE BENEFIT. (a) The Company (or the Trustee, if applicable) will purchase and maintain one or more insurance policies on the life of each Participant which, upon the death of the Participant (and subject to Section 5(b) below), will pay directly to the Participant's beneficiary an amount equal to (i) in the case of a Participant who dies while employed by the Company, the excess of (A) four times his Current Compensation, over (B) $50,000, and (ii) in the case of a Participant who dies after his employment with the Company has terminated, the excess of (A) four times his Current Compensation times his Vested Percentage, over (B) $50,000. (b) As of the date of a Participant's supplementary retirement income payments under Section 6 below begin (or, in the case of a Participant who is not entitled to receive any supplementary retirement income payments under Section 6, as of the date immediately following the date of such Participant's termination of employment with the Company), (i) the Company's obligations under this Section 5 to purchase and maintain insurance or otherwise provide a death benefit with respect to the Participant shall cease, (ii) the Participant will have no further rights under this Section 5 or under any insurance policy purchased hereunder, and (iii) if the Company (or, if applicable, the Trustee of the Grantor Trust described in Section 7 below) in its discretion decides to continue to maintain any insurance policies on the life of the Participant purchased under this Section 5 beyond the applicable date described above in this Section 5(b), the Company (or, if applicable, the Trustee) and, if required by any such policies, the Participant, shall take all steps necessary to name the Company (or Trustee) as the sole beneficiary of such policies as of such date. (c) A Participant may designate one or more beneficiaries entitled to receive benefits under this Section 5 in the event of his death on a form satisfactory to the Company and the insurance company or companies issuing the policy or policies on his life hereunder; however, the Participant shall have no other rights or incidence of ownership in any such policy. It is intended that any death benefit payable under an insurance policy purchased under this Section 5 will not be includible in the income of the beneficiary for federal income tax purposes, but that the one year term cost of such life insurance protection, as determined under the applicable provisions of the Internal Revenue Code and the regulations and rulings thereunder, will be includible in the gross income of a Participant while he has the right to name a beneficiary entitled to receive the death benefit. (d) A Participant shall cooperate fully with the Company in connection with any such policy by submitting to such medical examinations and providing such information as may be required from time to time by the Company or an insurance company. 6. SUPPLEMENTARY RETIREMENT INCOME AFTER TERMINATION OF EMPLOYMENT. (a) A Participant whose employment with the Company terminates for reasons other than death and who survives to the date determined by the Committee for the commencement of benefits under (b) below will be entitled to a monthly supplementary retirement benefit equal to the Participant's Supplementary Formula Amount, minus the Participant's Pension Offset Amount, minus the Participant's Social Security Offset Amount determined as of the month in which the particular payment is to be made, (b) supplementary payments to the Participant under this Section 6 will begin on the first day of such month as may be determined by the Committee in its sole discretion, provided that such benefit may commence (i) no earlier than the first day of the month coinciding with or next following the later of the date the Participant attains age 59 and the date his employment with the Company terminates, and (ii) no later than the first day of the month coinciding with or next following the later of the date the Participant attains age 65 and the date his employment with the Company terminates. (c) Once begun, supplementary payments to the Participant under this Section 6 shall be made monthly for the life of the Participant, but in any event for a minimum of 15 years from the date the first payment is made. If the Participant dies prior to the expiration of such 15-year period, his surviving spouse or, if there is no surviving spouse, his designated beneficiary, will receive a monthly amount for the remainder of the 15-year period equal to the monthly amount that would be payable to the Participant under this section 6 if he were still alive on the date payment is to be made to the surviving spouse or other beneficiary. A Participant nay designate a beneficiary entitled to receive benefits under this Section 6 for the balance of the 15-year period in the event there is no surviving spouse, in writing on a form satisfactory to the Company. If, after the death of a Participant during the 15-year period there is no surviving spouse or designated beneficiary, the present value of the monthly supplementary retirement benefits remaining to be paid during the 15-year period, determined using appropriate assumptions used under The Pension Plan as in effect from time to time (or if such plan is not then in effect, using appropriate assumptions then used by the Pension Benefit Guaranty Corporation in determining benefits upon plan termination), shall be paid as soon as practicable to the Participant's estate. Beginning with the first day of the month next following the later of (i) the Participant's death and (ii) the expiration of the 15-year period described above, the surviving spouse (determined as of the date of the Participant's death), if any, of a Participant who was receiving monthly payments under this Section 6 shall receive a monthly amount equal to 50% of the amount that would be payable to the Participant under this Section 6 if he were still alive on the date payment is to be made to the surviving spouse. Such payments to the surviving spouse shall continue each month for the life of the surviving spouse. 7. CERTAIN DEFINITIONS. For purposes of this Plan, (a) A Participant's "Current Compensation" is (i) in the case of a Participant who dies while still employed by the Company, the annual rate of base salary payable to the Participant in the calendar year of his death plus 100% of the target incentive compensation (as determined by the Company pursuant to its incentive compensation plans as in effect from time to time) for the salary grade of the Participant at the time of his death, and (ii) in the case of a Participant who dies after his employment with the Company has terminated, the amount that would be considered to be his Current Compensation under (i) above if he had died while an employee of the Company on the date his employment otherwise terminated. (b) A Participant's "Supplementary Formula Amount" is equal to the product of (i) the Participant's Vested Percentage determined as of the date his employment with the Company terminates, (ii) his Average Annual Compensation determined as of the date his employment with the Company terminates, and (iii) his Target Percentage determined as of the first date on which monthly supplementary retirement payments are made to the Participant under Section 6 above. (c) A Participant's "Vested Percentage" at any point in time is determined according to the applicable schedule below, based on whether he is a member of Group A or Group B and on his years of service with the Company (as such years are computed under The Pension Plan as in effect on the effective date of this restatement): Years of Service Vested Percentage (Group A) (Group A) less than 5 0% 5 but less than 6 50% 6 but less than 7 60% 7 but less than 8 70% 8 but less than 9 80% 9 but less than 10 90% 10 or more 100% Years of Service Vested Percentage (Group B) (Group B) less than 5 0% 5 but less than 6 25% 6 but less than 7 30% 7 but less than 8 35% 8 but less than 9 40% 9 but less than 10 45% 10 but less than 11 50% 11 but less than 12 60% 12 but less than 13 70% 13 but less than 14 80% 14 but less than 15 90% 15 or more 100% Notwithstanding the above schedules, however, upon a Change of Control the Vested Percentage of a Participant who is employed by the Company on the date of such Change will be 100%. (d) A Participant's "Average Annual Compensation" is the average of the amounts shown as wages on copies of Form W-2 which was filed by the Company with the Internal Revenue Service with respect to the Participant for the five consecutive calendar years for which the aggregate wages were higher than for any other five consecutive years. (e) A Participant's "Target Percentage" is determined according to the following schedule, based on his attained age as of the date that the first monthly supplementary retirement payment is to be made to him in the discretion of the Committee under Section 6 above: Attained Age as of Target Percentage Payment Commencement 59 but not 60 46% 60 but not 61 49% 61 but not 62 52% 62 or over 55% (f) A Participant's "Pension Offset Amount" is the amount that would be payable to the Participant under The Pension Plan, beginning on the date monthly supplementary retirement payments to the Participant are to begin under Section 6(b) above, in the form of an annuity which, in the case of a Participant who is married at the time his monthly supplementary retirement payments are to begin, will pay an amount to the Participant for his life and an equal amount to his surviving spouse, if any, for the spouse's life, and in the case of a Participant who is not married at the time his monthly supplementary retirement payments are to begin, will pay an amount for the life of the Participant only. In the event that payments under The Pension Plan actually begin on a date or are paid in a form other than that specified above in this clause (ii), the amount described in this clause (ii) shall be determined using such appropriate assumptions for actuarial equivalence as are specified in The Pension Plan. (g) A Participant's "Social Security Offset Amount" is equal to (i) in the case of a monthly supplementary retirement payment to be made to a Participant (or surviving spouse or other beneficiary) prior to the date on which the Participant attains (or would have attained) age 62, zero, (ii) in the case of a monthly supplementary retirement payment to be made to a Participant (or surviving spouse or other beneficiary) who has attained (or would have attained) age 62 and whose monthly supplementary retirement payment first began prior to his attaining age 62, 50% of the monthly Social security benefit which the Participant would receive had he begun to receive such Social Security benefit at age 62, and (iii) in the case of a monthly supplementary retirement payment to be made to a Participant (or surviving spouse or other beneficiary) who has (or had) attained age 62 and whose supplementary monthly retirement payments first began on or after the date the Participant attained age 62, 50% of the amount of monthly Social Security benefit that the Participant would receive if he had begun to receive such Social Security benefit on the date the Participant's monthly supplementary retirement payments began. (h) A "Change of Control" shall mean a change of control as defined in the attached Schedule A hereto which occurs after the effective date of this restatement. (i) "The Pension Plan" is the Charles River Laboratories, Inc. Pension Plan (Restated) as from time to time amended and in effect. (j) The "Trustee" is the trustee from time to time of the trust described in Section 8 below. 8. NATURE OF CLAIM FOR PAYMENTS. Except as herein provided the Company shall not be required to set aside or segregate any assets of any kind to meet its obligations hereunder. A Participant shall have no right on account of this Plan in or to any specific assets of the Company (other than rights with respect to life insurance policies purchased under Section 5 above). Any right to any payment that a participant may have on account of the Plan shall be those of a general, unsecured creditor of the Company. The Company may establish a trust of which the Company is treated as the owner under Subpart E of Subchapter J, Chapter 1 of the Internal Revenue Code (a "Grantor Trust"), and may from time to time deposit funds with the trustee of such trust (the "Trustee") to facilitate payment of the benefits provided under the Plan. In the event the Company establishes such a Grantor Trust with respect to the Plan and, at the time of a Change of Control, such Trust has not been terminated or revoked, within 30 days after such Change of Control the Company shall assign to the Trustee any life insurance policies purchased under Section 5 above which have not already been so assigned, and shall further contribute to such Grantor Trust, (a) the then present value, determined as hereinafter provided, of all benefits remaining to be paid under the Plan as in effect immediately prior to the Change of Control, including benefits in pay status and benefits that may become payable in the future with respect to Participants and their beneficiaries and any premiums required to purchase and maintain life insurance policies under Section 5 above, less (b) the value of all assets held in the Trust (using the cash surrender value as the value of any life insurance policy held in the Trust) determined as of the time immediately prior to the time the contribution under this sentence is being made. The present value of benefits payable in the future shall be determined using appropriate assumptions then used under The Pension Plan as in effect immediately prior to the Change of Control, or if such Plan is not then in effect, appropriate assumptions then used by the Pension Benefit Guaranty Corporation in determining the present value of benefits upon plan termination; provided that a Participant's compensation shall not be projected forward beyond the year of the Change of Control for purposes of determining such present value of benefits. In the event a Grantor Trust is established and, following a Change of Control, the Company obtains an opinion of counsel acceptable to itself and the Trustee that under existing law the Plan would be deemed "funded" for purposes of Title I of ERISA by reason of the Trust, or that amounts held in the Trust or contributed thereto, or earnings thereon (other than amounts allocable to the one-year term cost of any life insurance purchased under Section 5 above, as determined under the Internal Revenue Code or regulations or rulings thereunder) would be includible in the income of Participants or their beneficiaries prior to distribution from the Grantor Trust, and as a result thereof the Grantor Trust is terminated or revoked, the Company shall promptly assign and deliver to the Participant (or, if the Participant has died, to the persons or persons entitled to receive survivor benefits under Section 6(c) above) any insurance policies then maintained under the Plan with respect to the Participant (including any cash value in excess of the death benefit under such policies), and distribute to the Participant (or, if applicable, such other person or persons entitled to receive survivor benefits) an amount of cash equal to the amount, if any, by which the then cash value of such insurance policies is less than the then present value of the monthly supplementary retirement benefits remaining to be paid with respect to the Participant under this Plan. Present values under this paragraph shall be determined using appropriate assumptions used under The Pension Plan as in effect immediately prior to the Change of Control, or, if such Plan is not then in effect, the appropriate assumptions then used by the Pension Benefit Guaranty Corporation in determining the present value of benefits upon plan termination. In all events, the Company shall remain ultimately liable for the benefits payable under this Plan, and to the extent the assets at the disposal of the Trustee are insufficient to enable the Trustee to maintain any insurance policy or pay any retirement or survivor benefit hereunder, the Company shall pay any and all such premiums and any and all such retirement and survivor benefits necessary to meet its obligations under the Plan. 9. ASSIGNMENT. The interest hereunder of any Participant or beneficiary (including a surviving spouse) will not be alienable by the Participant or beneficiary by assignment or any other method and will not be subject to be taken by his creditors by any process whatsoever, and any attempt to cause such interest to be so subjected will not be recognized, except to such extent as may be required by law. The obligations of the Company hereunder shall be binding on its successors or assigns, whether by merger, consolidation or acquisition of all or substantially all of its business or assets. 10. NO CONTRACT OF EMPLOYMENT. The Plan will not be deemed to constitute a contract of employment between the Company and any Participant, or to be consideration for the employment of any Participant. The Plan will not be deemed to give any Participant the right to be retained in the employ of the Company to discharge any participant at any time. 11. AMENDMENT. The Plan (including the attached Schedule A) may be altered, amended or revoked in writing by the Company at any time, but no such action may reduce the Company's obligation with respect to a Participant who is then still employed by the Company below the amount to which he would be entitled under the Plan as in effect immediately prior to such action if his employment then terminated, and no such action may reduce the Company's obligation with respect to a Participant whose employment with the Company has already then terminated. 12. GOVERNING LAW. This Plan shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts to the extent not preempted by federal law. IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this amended and restated Plan, this 15th day of March, 1988. CHARLES RIVER LABORATORIES, INC. By: /s/ John Thomas SCHEDULE A CHANGE OF CONTROL DEFINITION "Change of Control" shall mean the occurrence of any one of the following events: (a) there occurs a change of control of a Target of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K purusant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") or in any other filing under the Exchange Act; or (b) any Person becomes the owner of 25% or more of a Target's Common Stock and thereafter individuals who were not directors of a Target prior to the date such Person became a 25% owner are elected as directors pursuant to an arragement or understanding with, or upon the request of or nomination by, such Person and constitute at least 25% of a Target's Board of Directors; or (c) there occurs any solicitation or series of solicitations of proxies by or on behalf of any Person other than a Target's Board of Directors and thereafter individuals who were not directors of a Target prior to the commencement of such solicitation or series of solicitations are elected as directors pursuant to an arrangement or understanding with, or upon the request of or nomination by, such Person and constitute at least 25% of a Target's Board of Directors; or (d) a Target executes an agreement of acquisition, merger or consolidation which contemplates that (i) after the effective date provided for in the agreement, all or substantially all of the business and/or assets of a Target shall be owned, leased or otherwise controlled by another corporation or other entity and (ii) individuals who are directors of a Target when such agreement is executed shall not constitute a majority of the board of directors of the survivor or successor company immediately after the effective date provided for in such agreement; provided, however, for purposes of this paragraph (d) that if such agreement requires as a condition precedent approval by a Target's shareholders of the agreement or transaction, a Change of Control shall not be deemed to have taken place unless and until such approval is secured (but upon any such approval, a Change of Control shall be deemed to have occurred on the date of execution of such agreement). For purposes of the above definition: "Common Stock" shall mean the then outstanding Common Stock of a Target plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock which such Person has the right to acquire (whether such right is excersisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise. Notwithstanding the foregoing, the term Common Stock shall not include shares of Preferred Stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors of a Target shall expressly so determine in any future transaction or transactions. A Person shall be deemed to be the "owner" of any Common Stock: (a) of which such Person would be the "beneficial owner" as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission (the "Commission") under the Exchange Act; or (b) of which such Person would be the "beneficial owner" as such term is defined under Section 16 of the Exchange Act and the rules of the Commission promulgated thereunder; or (c) which such Person or any of its Affiliates or Associates (as such terms are defined in Rule 12B-2 promulgated by the Commission under the Exchange Act) has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise. "Person" shall have the meaning used in Section 13(d) of the Exchange Act. "Target" shall mean Charles River Laboratories, Inc. or Bausch & Lomb Incorporated. EX-10 3 EXHIBIT (10)-U Exhibit (10)-u AGREEMENT Agreement dated as of January 1, 1997 between Bausch & Lomb Incorporated, having its address at One Bausch & Lomb Place, Rochester, New York 14604-2701 (the "Company") and William H. Waltrip, having his address at 1261 Pequot Avenue, Southport, Connecticut 06490 ("WHW"). 1. The Company and WHW have, pursuant to the 1990 Stock Incentive Plan, previously entered into an Incentive Stock Option Agreement dated March 21, 1996, which provides WHW with an incentive stock option to purchase 2,539 shares of Class B stock of the Company and a non-qualified Stock Option Agreement dated March 21,1996, which provides WHW with a non-qualified stock option to purchase 97,461 shares of the Class B stock of the Company (collectively, the "Option Agreements"). 2. The exercise price for the options (the "Options") granted pursuant to the Option Agreements is $39.375. This price was the market value of the stock subject to the Options on January 18, 1996, which was the date on which the Committee on Management of the Board of Directors granted the Options to WHW. 3. On December 12, 1995, when WHW assumed his responsibilities as interim Chairman and Chief Executive Officer of the Company, the market value of the Company's Class B stock was $36.94 per share. 4. In order to provide WHW with the full benefit of any appreciation in the value of the Company's stock from the date on which WHW first assumed his executive responsibilities, the Company agrees that at such time or from time to time when WHW exercises all or any part of the Options, provided that the stock price for such Options is equal to or greater than $39.375 at the time of each such exercise) the Company will pay WHW $2.43 per share of stock acquired upon each such exercise. WHW will be subject to any applicable withholding taxes in connection with any such payment. 5. The Company hereby confirms that this Agreement has been duly authorized by the Committee on Management and executed by the Company on behalf of the Committee. Bausch & Lomb Incorporated By: /s/ William H. Waltrip William H. Waltrip EX-10 4 EXHIBIT (10)-V Exhibit (10)-v CORPORATE OFFICER SEPARATION PLAN 1.0 Background 1.1 Purpose: The purpose of the Corporate Officer Separation Plan is to establish an equitable measure of compensation for a corporate officer of the Company who has been terminated; and provide some continuation of benefit protection during the period of outplacement. 1.2 Eligibility: Eligible employees under this Plan are corporate officers of the Company, other than assistant officers, whose employment is terminated for reasons other than cause, voluntary resignation, disability, early or normal retirement, or death. 2.0 Definitions 2.1 Termination for Cause: A termination of employment status for fraud, violence, theft, gross misconduct, discrimination, harassment or actions which create legal liabilities for the Company or actions of malicious intent which directly compromise the individual's role/accountabilities. 2.2 Separation Date: The last day of full time active employment. 2.3 Termination Date: The end of the severance period, will be the separation date or the last day as a severed employee receiving benefits, in the event the officer elects to receive cycle payments. 3.0 Severance Pay 3.1 Maximum Severance Pay Allowance: A corporate officer shall be entitled to a severance pay allowance equal to twelve (12) months of the corporate officer's base pay plus an amount equal to the accrued vacation pay payable to the corporate officer as of the separation date. 3.2 Method of Payment: The Company shall make payments to the corporate officer monthly, based upon normal payroll procedures, or in one lump sum payment at the officer's election. 4.0 Incentive Compensation 4.1 Executive Incentive Compensation and Long Term Incentive Plans: Participants whose separation date is after June 30 in any plan year, will receive a pro rata bonus based on the period of active employment on the date that such bonuses are paid to all other active eligible employees. 5.0 Stock Incentive Plan 5.1 Pursuant to the Company's Stock Incentive Plans: - a corporate officer who is terminated will have 90 days from the termination date in which to exercise vested stock options. Only options which have vested on or before the separation date may be exercised. - on or after the separation date a corporate officer will not be eligible for Company loans in connection with the exercise of vested options. - a corporate officer who is terminated has ownership rights to restricted stock to the extent it was vested at the separation date. 6.0 Outplacement Services The Company will assist the corporate officer in the search for new employment by paying professional fees for the services of an outplacement organization or executive search firm and reimbursement of reasonable travel expenses, not otherwise reimbursable, incurred in the normal course of a job search. 7.0 Financial Perquisites 7.1 Company Car: Upon separation, the officer's car may be purchased by the executive at a price to be determined by the Company based upon the fair market value of the car. If not purchased, the car must be returned to the Company on the separation date. The purchase price will be deducted from the severance payments if the executive has failed to make arrangements to return or purchase the vehicle on or before the separation date. 7.2 Club Membership: Eligibility for Company reimbursement or payment normally made on behalf of certain executives for regular dues associated with a country, social, luncheon or airline club membership shall continue until the termination date. 7.3 Financial Counseling Plan: Benefits under the Executive Financial Counseling Plan shall continue until the termination date. For partial years, a pro rata allowance will be paid based on months of severance. 8.0 Benefits/Perquisites Executive Health, Life Insurance, Retirement Income, and Savings Plus Plan: Executive Health, Life Insurance, Retirement Income, and Savings Plus Plan Benefits shall continue during the period of severance with benefits, and cease on the termination date. Benefits under the Disability Plan cease on the separation date. There are no conversion privileges. All other benefits made available by the Company to executives from time to time shall cease as of the separation date. 9.0 Administration of the Plan 9.1 Preparation of Severance Package: Human Resources is responsible for the preparation of the executive severance package in accordance with this Plan. 9.2 Other Policies and Plans: This Plan supersedes the officer separation plan of July 22,1987. EX-10 5 EXHIBIT (10)-W Exhibit (10)-w BAUSCH & LOMB INCORPORATED EVA MANAGEMENT INCENTIVE COMPENSATION PLAN I. Introduction. The EVA Management Incentive Compensation Plan (the "Plan") is established to create effective incentives for managers of Bausch & Lomb Incorporated (the "Company") to increase shareholder value over the long term. The Plan is also designed to provide competitive levels of compensation to enable the Company to attract and retain managers who are able to exert a significant impact on the value of the Company for its shareholders. II. Plan Participants. Employees of the Company who are in the mid-management band and above are eligible to participate in the Plan ("Participants"). III. Definitions. A. "Economic Value Added" ("EVA") means the increase or decrease in shareholder value of the Company or EVA profit center, as applicable, determined pursuant to Subsections 1- 5 below. 1. EVA means the NOPAT that remains after subtracting the Capital Charge, expressed as follows NOPAT Less: Capital Charge Equals: EVA EVA may be positive or negative. 2. "NOPAT" means Net Operating Profit After Tax, calculated by adjusting Operating Earnings from an accounting to an economic basis. Adjustments to Operating Earnings would include the following applicable items: Interest Income, Interest Expense on Non-Capitalized Leases, Goodwill Amortization, Change in Capitalized R&D and Specifically Defined Marketing Expenses, Restructuring Charges/Unusual Items, and Taxes. 3. "Capital Charge" means the opportunity cost of employing Capital in the Company's businesses, calculated as follows: Capital Charge = Capital x Cost of Capital 4. "Capital" means the investment made in the operation of the Company or EVA profit center within the company. Capital is calculated by adjusting Total Assets by the following applicable items: Deferred Tax Assets, Non- Interest-bearing Current Liabilities, Capitalized R&D and Specifically Defined Marketing Expenses, Present Value of Non-Capitalized Leases, Accumulated Goodwill Amortization, Factored Receivables, Restructuring Charges/Unusual Items, and Strategic Investments. For each Plan year, Capital will be computed using a 5 point average of the ending Capital of the prior Plan Year and each quarter's ending Capital of the Plan Year. 5. "Cost of Capital" means the weighted average of the cost of equity and the after-tax cost of debt. The Cost of Capital will be determined by the Committee prior to each Plan Year. B. "Actual EVA" means the EVA for the Company as calculated for the relevant Plan Year. C. "Actual Profit Center EVA" means the EVA for a profit center within the Company which is calculated in a manner similar to the Company's Actual EVA, except that all relevant terms are defined by reference to the particular EVA profit center instead of the entire Company. The Committee will determine the relevant EVA profit centers. D. "Expected EVA Improvement" means the dollar amount by which EVA must increase in the next Plan Year over the Actual EVA achieved in the prior Plan Year in order for Participants' Target Bonuses to be funded by the Company. Expected EVA Improvement represents investors' expectations for the Company's operating performance in the next Plan Year. Expected EVA Improvement will be approved by the Committee prior to the commencement of each Plan Year. E. "Actual EVA Movement" means the dollar amount by which Actual EVA or Actual Profit Center EVA, respectively, for a Plan Year is greater than or less than Actual EVA or Actual Profit Center EVA, as applicable, for the prior Plan Year. F. "Target Bonus" is defined as a percentage of a Participant's base salary earned during a Plan Year which will be funded if the Expected EVA Improvement is achieved. Percentages for Target Bonuses are established for certain bands and all officer grades as set forth in Appendix I to the Plan. G. "EVA Interval" means the amount of deviation greater than or less than the Expected EVA Improvement that would correspondingly result in (i) doubling Participants' Target Bonuses or (ii) eliminating Participants' Target Bonuses. The amount of such deviation in Subsection (ii) which eliminates Participants' Target Bonuses is referred to as the "Zero Calculated Bonus Interval." H. "Calculated Bonus" means the bonus amount calculated for a Participant pursuant to Section V. which is added to or deducted from the Cumulative Bonus Account pursuant to Section VI. I. "Actual Bonus" means the bonus amount which is actually paid to a Participant pursuant to Section VI. J. "Cumulative Bonus Account" means the "at risk" account in which all Calculated Bonuses (positive and negative) are accumulated over time and from which all Actual Bonuses are subsequently paid to the extent provided in Section VI. K. "Plan Year" means each one year period coincident with a fiscal year of the Company. L. "Committee" means the Committee on Management of the Company's Board of Directors. IV. Performance Measurement. A. As soon as practicable after each Plan Year, Actual EVA and Actual Profit Center EVA's, as applicable, will be determined based on the EVA calculation set forth in Section I.A., and Calculated Bonuses will be based on the bonus calculation in Section V. The criteria for determining Calculated Bonuses for Participants will be as follows: 1. Management Committee members - based 100% on the Company's Actual EVA Movement. 2. Business unit managers - based on weighted percentages for the Actual EVA Movement for their EVA profit center and the Company's Actual EVA Movement as approved by or under the direction of the Committee. 3. Country managers, controllers and commercial directors - based on weighted percentages for the Actual EVA Movement for their EVA profit center and accomplishment of specific EVA "drivers" as approved by or under the direction of the Committee. B. For Participants listed in Subsection A.3. above, EVA "drivers" will be established at the beginning of each Plan Year. These EVA "drivers" may be individual, team, functional or country goals designed to support the Company and/or relevant business units in realizing Expected EVA Improvement for that Plan Year. V. Bonus Calculation. A. The amount of the Calculated Bonus in any Plan Year is determined as follows: 1. The Calculated Bonus is equal to the Target Bonus as adjusted up or down by the Performance Adjustment based on the amount by which the Company or EVA profit center realizes an Actual EVA Movement which is greater than or less than the Expected EVA Improvement. 2. The adjustment of the Target Bonus is based on Actual EVA Movement and is determined using the following calculation: Calculated Bonus = Target Bonus plus Performance Adjustment Performance Adjustment = (Actual EVA Movement Expected EVA Improvement)/divided by the EVA Interval 3. There is no cap or floor on the amount of the Calculated Bonus (i.e., the Calculated Bonus may be any multiple or fraction of the Target Bonus, and it may be less than zero). 4. For Participants who have EVA "drivers", the Calculated Bonus will also include a weighted amount for each such Participant's achievement of the predefined EVA "drivers". The amount of any Calculated Bonus based on EVA "drivers" may range from 0 to 200% of that weighted component for the Target Bonus, depending upon whether performance met, exceeded or was less than expectations. B. A Calculated Bonus for an EVA profit center may be modified as a result of the following: 1. Actual Profit Center EVA may be modified +/- 20% if such Actual Profit Center EVA does not appropriately reflect the business unit's contribution (or lack of contribution) to the achievement of the Company's strategic growth goals. Adjustments must be made in 5% increments and are subject to the approval of the Company's chief executive officer. 2. Any Participant's Calculated Bonus may be modified +/- 20% to accurately reflect the extent to which such Participant's overall individual performance fulfills the Company's leadership attributes. Adjustments must be made in 5% increments and are subject to the approval of the appropriate Management Committee member, or in the case of the Company's chief executive officer, the approval of the Committee. C. Examples of the computation of the Calculated Bonus are set forth in Appendix 2. VI. Cumulative Bonus Account; Actual Bonus Payments. A. To encourage management's long term commitment to the enhancement of shareholder value in the Company, Calculated Bonuses will be credited to the Cumulative Bonus Account established for each Participant. All negative Calculated Bonuses will be charged as a debit against the Participant's Cumulative Bonus Account. B. Each Participant's Cumulative Bonus Account balance will initially be zero. C. Provided that for the relevant Plan Year the Participant has a sufficient positive Cumulative Bonus Account balance, Actual Bonuses will be paid from the Cumulative Bonus Account, as follows: 1. If Actual EVA Movement equals or exceeds Expected EVA Improvement for a Plan Year, 100% of the Calculated Bonus will be paid up to the amount of the Participant's Target Bonus plus an additional 50% of any remaining positive Cumulative Bonus Account balance. 2. If Actual EVA Movement is less than the Expected EVA Improvement for a Plan Year, but Actual EVA or Actual Profit Center EVA is greater than the Zero Calculated Bonus Interval, 100% of that reduced bonus amount (i.e. less than Target Bonus) will be paid to the Participant plus (i) any Cumulative Bonus Account balance up to the Target Bonus and (ii) an additional 50% of any remaining positive Cumulative Bonus Account balance. 3. If (i) Actual EVA (or Actual Profit Center EVA, as applicable) is less than the Zero Calculated Bonus Interval (as defined in Subsection 1G) and (ii) the Calculated Bonus, after taking into account any Calculated Bonus attributable to EVA "drivers", is negative, such negative amount will be charged as a debit against any positive Cumulative Bonus Account balance or added to any negative Cumulative Bonus Account balance. 4. If Actual EVA (or Actual Profit Center EVA, as applicable) is less than the Zero Calculated Bonus Interval, but the Calculated Bonus, after taking into account that part of the Calculated Bonus attributable to EVA "drivers", is positive, the Actual Bonus will be paid pursuant to Subsection VI C.2 above. D. In the event a Participant has a negative Cumulative Bonus Account balance for the relevant Plan Year, Calculated Bonuses will be subject to the following: 1. Only 50% of positive Calculated Bonuses up to the amount of the Target Bonus will be paid as Actual Bonuses, and the balance of such Calculated Bonuses will be used to amortize the negative Cumulative Bonus Account balance until the Cumulative Bonus Account balance is restored to zero. To the extent Calculated Bonuses are required to be offset against negative Cumulative Bonus Account balances pursuant to this Subsection, such Calculated Bonuses will not, at any time, become payable to a Participant. 2. 100% of negative Calculated Bonuses will be added to such negative Cumulative Bonus Account balance. E. Examples of the computation of Actual Bonuses are included in Appendix 2. F. Payouts of Actual Bonuses will be made to Participants as soon as practicable after the end of each Plan Year. VII. Change in Status During Plan Year A. New Hires and Promotions 1. A newly hired or recently promoted employee of the Company who is a Participant in the Plan for at least six months of his/her first Plan Year will be eligible for an Actual Bonus which is based on salary paid during the partial Plan Year after the effective date of hire or promotion, as the case may be. 2. A newly hired or recently promoted employee of the Company who is a Participant for less than six months in his/her initial Plan Year will be eligible for a Calculated Bonus for a portion of that Plan Year after the effective date of hire or promotion, as the case may be, only if the terms of such partial Plan Year bonus are agreed to in writing between the Participant and the Company at the time of hire. These arrangements must be approved in writing in advance by the Business Unit President, Corporate Compensation, Corporate Senior Vice President Human Resources, and normal 1 over 1 approval matrix. B. Transfers. 1. A Participant who is transferred from one EVA profit center to another EVA profit center during a Plan Year will transfer with their Cumulative Bonus Account balance, whether positive or negative. 2. The Calculated Bonus for the Plan Year in which the transfer occurs will be based on the full year Actual EVA results of both EVA profit center in which the Participant worked, pro rated for the number of months of Participant's service as recognized by payroll reporting in each EVA profit center. 3. Any positive Cumulative Bonus Account balance transferred with a Participant will only be paid out as part of future Actual Bonuses calculated on the basis of the performance of the Participant's new EVA profit centers. 4. Any negative Cumulative Bonus Account balance transferred with a Participant will be increased or decreased pursuant to Section VI D. using future Calculated Bonuses based on the performance of the Participant's new EVA profit center. C. Terminations. 1. A Participant who terminates voluntarily from the Company during a Plan Year will not be eligible for any bonus for that Plan Year and will forfeit any positive Cumulative Bonus Account balance. 2. (a) If a Participant's termination during a Plan Year is due to retirement with age and service consistent with post-retirement eligibility in the Bausch & Lomb Post Retirement Benefits Plan(age 55 and ten years of service) before having served at least six months "benefits eligible retirement" as an eligible Participant in that Plan Year, such Participant will not be eligible for any bonus for that Plan Year, but any positive Cumulative Bonus Account balance will be paid to such Participant as soon as administratively feasible after the effective date of retirement. (b) If a Participant's termination during a Plan Year is due to retirement and the Participant was actively employed after having served at least six months as an eligible Participant in that Plan Year, a pro rata Calculated Bonus and Actual Bonus will be calculated and paid in accordance with the Plan, and if the retirement was a benefits eligible retirement, any remaining positive Cumulative Bonus Account balance of such Participant will thereafter also be paid in full to Participant. If a benefits eligible retirement under this subsection 2(b) occurs prior to or concurrent with the annual EVA payment cycle, then payment of any Cumulative Bonus Account balance will be paid at the next payment cycle. 3. In cases of involuntary termination due to death, disability, reduction in work force, or the sale or closing of a plant or business unit before completion by the Participant of at least six months service as an eligible Participant during the Plan Year, such Participant will not be eligible for any bonus for that Plan Year, but any positive Cumulative Bonus Account balance will be paid to Participant after the Plan Year in which such termination of the Participant occurred. In cases of involuntary termination due to death, disability, reduction in work force, or the sale or closing of a plant or business unit after completion by the Participant of at least six months service as an eligible Participant during the Plan Year , a pro rata Calculated Bonus and Actual Bonus will be calculated and paid in accordance with the Plan, and any remaining positive Cumulative Bonus Account balance of Participant will thereafter also be paid in full to Participant after the Plan Year during which such termination occurred. 4. A Participant who is terminated during a Plan Year involuntarily for any other reason will not be eligible for any bonus for the Plan Year in which termination occurs and will forfeit any positive Cumulative Bonus Account balance. D. Leave of Absence. An employee whose status as an active employee is changed during a Plan Year as a result of a leave of absence may, at the discretion of the Committee, be eligible for a pro rata bonus determined in the same way as in Subsection VII A. E. Demotions 1. An employee who is transferred into a non-eligible group of employees after having served six months during the Plan Year shall be paid a pro-rata Calculated Bonus and Actual Bonus determined in the same manner as in Subsection VII A. Any remaining positive Cumulative Bonus Account balance shall remain unpaid unless and until such time as the employee again becomes eligible for the Plan, notwithstanding provisions herein providing for payment of Cumulative Bonus Account balances upon death, disability or retirement. 2. An employee who is transferred into a non-eligible group of employees prior to having served six months during the Plan Year in an EVA eligible group of employees shall not be entitled to a Calculated Bonus and Actual Bonus. Any remaining positive Cumulative Bonus Account balance shall remain unpaid unless and until such time as the employee again becomes eligible for the Plan, notwithstanding provisions herein providing for payment of Cumulative Bonus Account balances upon death, disability or retirement. F. Change of Control. Notwithstanding any other provision of this Plan, a special incentive bonus shall be paid to Participants if, during the period between the date of a change in control and the end of the Plan Year: 1. the Participant's employment is terminated involuntarily other than for good cause, or 2. the Plan is terminated. The amount of the special incentive bonus shall equal (i) the greater of (a) the Target Bonus without regard to any other calculations under the Plan, prorated through the date of termination of the Participant or the Plan, as applicable, or (b) the Actual Bonus which would be payable to the Participant based on results for the full Plan Year, prorated through the date of termination of the Participant or the Plan, as applicable, and (ii) any positive Cumulative Bonus Account balance. A change of control of the Company is defined as follows: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. VIII. Miscellaneous. A. Amendments. The Committee shall have the right to modify or amend this Plan from time to time, or suspend it or terminate it entirely; provided that no such modification, amendment, suspension, or termination may, without the consent of any affected Participants (or beneficiaries of such Participants in the event of death), reduce the rights of any such Participants (or beneficiaries, as applicable) to a payment or distribution already payable under Plan terms in effect prior to such change. B. Role of the Committee. (i) Interpretation of the Plan. Any decision of the Committee with respect to any issue concerning individuals selected as Participants, the amount, terms, form and time of payment of bonuses, and interpretation of any Plan guideline, definition, term or requirement shall be final and binding. (ii) Appointment of the EVA Administrator. The Committee may designate, from time to time, an EVA Administrator to control and manage the operation and administration of the Plan. Any person, including a director, officer or an employee of the Employer is eligible for appointment as EVA Administrator. Such members shall serve at the pleasure of the Committee. Vacancies arising by resignation death, removal or otherwise, shall be filled by the Committee but shall not prevent the EVA Administrator from functioning. The EVA Administrator shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan, except such powers as are specifically reserved to the Committee or some other person. The EVA Administrator's powers include the power to make and publish such rules and regulations as it may deem necessary to carry out the provisions of the Plan. C. Right to Continued Employment; Additional Awards. Participation in the Plan or the receipt of a bonus under the Plan shall not give the recipient any right to continued employment (such employment shall be "at will"), and the right and power to dismiss any employee is specifically reserved to the Company. In addition, the receipt of a bonus with respect to any Plan Year shall not entitle the recipient to any bonus with respect to any subsequent Plan Year, except as expressly provided in the Plan. D. Withholding Taxes. The Company shall have the right to deduct from all payments under this Plan any Federal or state taxes required by law to be withheld with respect to such payments. E. Deferred Compensation. Participants may elect to defer all or part of an Actual Bonus in accordance with the procedures set forth in the Company's Executive Deferred Compensation Plan. F. Interaction with Management Incentive Compensation Plan. Amounts payable under this Plan shall be offset against amounts actually paid to a Participant under the Bausch & Lomb Incorporated Management Incentive Compensation Plan, dated as of January 1, 1998. G. Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of New York. BAUSCH & LOMB INCORPORATED By: /s/ Daryl M. Dickson Daryl M. Dickson Senior Vice President Human Resources Dated: February 24, 1998 APPENDIX LIST Appendix 1 - EVA TARGET BONUS TABLE Appendix 2 Sample EVA Calculated Bonus and Actual Bonus APPENDIX 1 EVA TARGET BONUS TABLE BAND/GRADE TARGET PERCENTAGE Non-Officers MM/T 15% EXEC 30% SR. EXEC 35% Officers 65 37% 66 40% 67 45% 68 50% 69 55% 70 55% 71 55% 72 55% 73 60% 74 80% 75 80% APPENDIX 2 Base Pay: $100,000 Target Bonus: 10%, $10,000 Expected EVA Improvement: $5.0MM EVA Interval: $15.0MM Actual EVA Movement: $10MM Calculated Bonus = $10,000 x [1+(Actual EVA Move. - Expected EVA Improve.)] --------------------------- EVA Interval = $10,000 x [ 1+ $10MM-$5MM ] ------------- 15MM = $10,000 x [1 + .33] = $10,000 x 1.33 = $13,333 BONUS PAYOUT Bonus Payout. Cumulative Bonus Account (CBA) Pay to Target = $10,000 Plus 50% of CBA = $1, 667 Total Payout = $11,667 CBA 50% Above Target = $1,667 Year Two Payout Calculated Bonus = $12,000 Plus $1,667 In CBA = $13,667 Pay to Target = $10,000 Remaining CBA = $3,667 Pay 50% of CBA = $1,833 Total Payout = $11,833 CBA 50% = $1,833 BONUS PAYOUT EXAMPLE Year Three Payout. Calculated Bonus Below Target Calculated bonus = $8,000 Plus $1,833 in CBA = $9,833 Attempt to Pay to target = $9,833 Remaining CBA balance = $0 Year Four. Performance Below Zero Calculated EVA Interval Actual EVA Movement = ($11MM) Calculated bonus = $10,000 x [1+ ($11MM) - $5MM ] -------------- $15MM = $10,000 x [ 1 + -$16MM ] --------- $15MM = $10,000 x [ 1 - 1.07] = $10,000 x [ -.07] Cumulative Bonus Account Balance = -$700 EX-11 6 EXHIBIT 11 Bausch & Lomb Incorporated Exhibit 11
Statement Regarding Computation of Per Share Earnings (Share Amounts in Thousands Except Per Share Data) TWELVE MONTHS ENDED December 27, December 28, 1997 1996 _______________________________________________________________ Net earnings (in millions) (a) $ 49.4 $ 83.1 Actual outstanding Common and Class B shares at beginning of period 55,404 56,941 Sum of weighted average activity of: (1) Common and Class B shares issued for stock options, (2) repurchases of Common and Class B stock and (3) cancellation of outstanding stock options (21) (642) Weighted Basic Shares (b) 55,383 56,299 Effect of assumed exercise of Common stock equivalent 271 211 Weighted diluted Shares (c) 55,654 56,510 Basic earnings per share (a/b) 0.89 1.48 Diluted earnings per share (a/c) 0.89 1.47
EX-12 7 EXHIBIT 12 Bausch & Lomb Incorporated Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges (Dollar Amounts in Millions) December 27, December 28, 1997 1996 ____________________________________________________________ Earnings before provision of income taxes and minority interests $118.0 $168.9 Fixed charges 57.9 53.5 Capitalized interest, net of current period amortization 0.3 0.3 ------ ------ Total earnings as adjusted $176.2 $222.7 ------ ------ ------ ------ Fixed charges: Interest (including interest expense and capitalized interest) $ 56.1 $ 51.7 Portion of rents representative of the interest factor 1.8 1.8 ------ ------ Total fixed charges $ 57.9 $ 53.5 ------ ------ ------ ------ Ratio of earnings to fixed charges 3.04 4.16 Excluding the effects of the restructuring charge recorded in 1996 and the net gain on divestitures of the oral care and dental implant businesses, the ratio of earnings to fixed charges at December 28, 1996 would have been 4.47. Excluding the effects of the restructuring charges recorded in 1997 the ratio of earnings to fixed charges at December 27, 1997 would have been 4.28.
EX-13 8 [front cover] BAUSCH & LOMB [graphic of an eye, background pattern of the earth] Number One in the Eyes of the World 1997 Annual Report [inside front cover] Bausch & Lomb At A Glance As a global eye care company, Bausch & Lomb will help consumers see, look and feel better through innovative technology and design. [background graphic of pie chart] 47% Vision Care [photo of Bausch & Lomb vision care products] This segment includes contact lenses and lens care products. Brand names include ReNu, ReNu MultiPlus, Sensitive Eyes, SofLens66 and Boston. Vision care products are marketed through eye care professionals, pharmaceutical retailers and mass merchandisers. 26% Eyewear [photo of Ray-Ban ad with characters from movie "Men in Black"] Our eyewear segment includes premium-priced sunglasses sold worldwide under such well-known names as Ray-Ban, Revo, Killer Loop, Arnette and Porsche Design. 10% Pharmaceuticals [photo of Bausch & Lomb products] This business manufactures and sells generic and proprietary prescription pharmaceuticals, mostly in the ophthalmic field, and over-the-counter (OTC) medications. These products are marketed under the names Bausch & Lomb and Dr. Mann Pharma. 17% Healthcare [photo of Charles River Laboratories products] Included in this segment are businesses which provide purpose-bred laboratory animals, biomedical products and services, skin care products and hearing aids. These products are marketed under such established names as Miracle-Ear, Mirage, Curel, Soft Sense and Charles River Laboratories. Recent Acquisitions [photo of various acquisition company products] The acquisitions of Chiron Vision Corporation (Chiron Vision) and Storz Instrument Company (Storz) will provide Bausch & Lomb with a strong leadership position in ophthalmic surgery with products in cataract, refractive and retinal surgery. Financial Highlights
For The Years Ended December 30, 1995, December 28, 1996 Percentage and December 27, 1997 Dollar Amounts Change In Millions -- Except Per Share Data 1995 1996 1997 From 1996 - ------------------------------------------------------------------------------------------------------------------------ Business Results Net sales $1,932.9 $1,926.8 $1,915.7 (1%) Operating earnings 210.6 190.8 148.0 (22%) Net earnings 112.0 83.1 49.4 (41%) Per share: Basic earnings 1.94 1.48 0.89 (40%) Diluted earnings 1.93 1.47 0.89 (39%) Dividends declared 1.01 1.04 1.04 -- Shareholders' equity at year end 16.32 15.92 14.82 (7%) Capital expenditures 95.5 130.3 126.1 Working capital 70.9 18.5 202.9 Average Common shares outstanding (000s): Basic 57,704 56,299 55,383 Diluted 57,974 56,510 55,654 Return on average shareholders' equity 11.9% 9.2% 5.9% High/low stock price $44-1/2 - $30-7/8 $44-1/2 - $32-1/2 $47-7/8 - $32-1/2 =====================================================================
Contents Letter to Shareholders 2 Strategic Discussion 8 Report of Management 25 Financial Review 26 Financial Statements 38 Notes to Financial Statements 41 Report of Independent Accountants 62 Selected Financial Data 63 Divisions and Subsidiaries 64 Directors and Officers 66 To Our Shareholders We are pleased with the progress we made during 1997 in transforming Bausch & Lomb from a diversified healthcare and optics company to one focused squarely on global eye care. While changing market conditions and volatile foreign currencies had a negative effect on our financial results, the company's overall performance was reassuringly in line with the strategies we have put in place. Achieving our vision to be "Number One in the Eyes of the World" requires that we continue the momentum that we gained during 1997. We will continue to rationalize our business portfolio and pursue new opportunities for strategic growth. We will improve the value of our core businesses while managing non-core businesses for the best possible investor return. And we will continue to extract savings from our restructuring programs -- savings that will be redirected to revenue-building activities and increasing investor returns. New growth opportunities. A rationalized portfolio. Beyond improving financial performance, 1997 was also a year in which we made strategic acquisitions to set the stage for accelerated growth in the future. Our acquisitions of Chiron Vision Corporation and Storz Instrument Company strengthen the Bausch & Lomb portfolio and clearly establish the company as the leader in global eye care. Together, these companies create a world-class competitor in the cataract surgery market, augment our pharmaceutical business, provide a platform on which to build a retinal surgery business and position us as a front-runner in refractive surgery. The integration of these businesses is well along and should yield significant financial benefits to investors after 1998. Acquisitions like these leverage our core capabilities -- such as marketing regulated products to eyecare professionals -- and build greater shareholder value. Likewise, we are mindful of the need to derive maximum value from non-core enterprises. To that end, the thin film technology business was sold in 1997, and we will continue to rationalize our portfolio in the future. While the businesses in our healthcare segment performed well and enhanced the financial performance of the company during 1997, we continue to closely evaluate their long-term value. Strengthening the core. The key strategies for our vision care business are to leverage the strength of our comprehensive product line and the globally recognized Bausch & Lomb name, [2] [various photos of William M. Carpenter and William H. Waltrip] Our acquisitions of Chiron Vision and Storz clearly establish the company as the leader in global eye care. [3] protect our market leadership by continuously introducing innovative new products and continue to aggressively lower production costs. This is a business that has successfully risen to each competitive challenge. We expect to see equally solid performance in 1998. Our pharmaceutical business is focused on accelerating its growth by introducing new proprietary ophthalmic products, maintaining a steady pipeline of generic products that take advantage of its manufacturing strengths and regulatory capabilities and expanding into new markets throughout the world. Having built a solid foundation, this business should continue to show strong growth. Our eyewear business, which remained a drag on revenue and earnings growth, was the subject of intense management attention in 1997, and our efforts appear to be paying off. On a global basis, we have concentrated on strengthening the leadership position of the Ray-Ban line through new designs, merchandising and marketing programs, while also expanding our other brands to new markets. However, our highest priorities continue to be in the areas of cost reduction, margin improvement and expediting product delivery. Dramatic improvements in these areas in 1997 will yield benefits this year. We expect the eyewear business to return to profitability in 1998, and are committed to steadily improve margins over the subsequent years. Bausch & Lomb now has the broadest portfolio of eye care products, for both the professional and consumer markets, of any company in the world. Restructuring for success. Over the past two years, Bausch & Lomb announced restructuring programs designed to save a total of $150 million in annual operating costs. Some of that is earmarked to improve operating margins, while the remainder is to be reinvested in growth opportunities. In order to achieve our strategic initiatives over the next three years, it is critical that we remain on track in delivering these savings. Beyond cost reduction, these restructuring activities are also geared to improving our global competitiveness. For example, we consolidated 13 warehouses in various European countries into a single distribution center in Amsterdam. While significantly reducing cost, this initiative was designed to improve customer service, reduce inventory and simplify our delivery system in Europe. On a broader scale and with longer term implications, we are transforming our global financial systems. The establishment of three regional shared-service centers -- in the United States, Europe and Asia -- will streamline, simplify and [4] Our objective is to ensure our people recognize that transforming a business is an ongoing process. automate transaction processing while eliminating many unnecessary steps. While saving $30 million a year, once implemented, this financial reengineering project will also provide a centralized data warehouse which will be utilized to enhance the quality and efficiency of our business analysis. But these are specific programs with specific targets. Our objective is to ensure our people recognize that transforming a business is an ongoing process, especially in rapidly changing markets like ours. Through our work on Economic Value Added (EVA) and the commitment to generate profits over and above the cost of capital, we recognize that continuous improvement and cost reduction initiatives need to be embedded in the way we evaluate ourselves and build our operations. Looking ahead. Bausch & Lomb now has the broadest portfolio of eye care products, for both the professional and consumer markets, of any company in the world. Our global businesses have strategies in place that are designed to generate accelerated performance in sales and earnings, and we are firmly on track to meet the $150 million in annual cost savings we have announced over the past two years. We are committed to making sure the trends keep moving in the right direction. Through our focus on EVA as a key measure of our performance, we can ensure the way we manage the business is in the best interest of maximizing investor returns. Overall, these achievements would not have been possible without the diligent efforts of the men and women of Bausch & Lomb around the world, and the continued support of our investors. As we approach the millennium, we are clearly positioned to grow into the company we know we can be. /s/ William H. Waltrip /s/ William M. Carpenter William H. Waltrip William M. Carpenter Chairman President and Chief Executive Officer [5] [Graphic: technical illustration of imaging the earth on the retna of the eye] Number One in the Eyes of the World Bausch & Lomb is a world leader in products that go in or on the eye. The company is building on that position by expanding its current eye care businesses, and pursuing promising new opportunities in eye care, such as the recent acquisitions of Chiron Vision and Storz. [7] Vision Care [Photos: Various people with contact lenses and a contact lens product display.] "We continue to gain market share through technological leadership, innovative new products and exceptional brand equity." Carl E. Sassano Executive Vice President and President - Vision Care Accomplishments Launched: ReNu Multiplus solution is the world's first single-bottle lens care solution that cleans, disinfects and removes protein buildup, thus eliminating the need for a separate enzymatic cleaner for many consumers. Launched: The new Boston MultiVision rigid gas permeable contact lens corrects presbyopia, a sight-compromising condition in the growing population of middle-aged people. Expanded: Revenues grew by more than 40% in China, the world's fastest growing vision care market. Disposable contact lens shipments in Japan nearly doubled. Expanded: Production capacity for daily disposable lenses more than tripled. Reduced: Over $15 million in annualized cost savings were achieved through investment in new manufacturing processes. Outlook The continued growth of Bausch & Lomb's vision care segment depends heavily upon technological leadership and innovative new products. To that end, during 1998, we plan to launch our new SofLens66 toric cast-mold disposable contact lens for people with astigmatism. This lens will have a significant production cost and technology advantage in a potentially vast market. In addition, the U.S. launch of SofLens one day disposable lenses will be an important step in Bausch & Lomb's expansion in the growing single-use market. Finally, PureVision, a breakthrough continuous wear lens, has entered clinical trials and will be launched on a limited test basis in Europe. These new products, combined with our existing products, will enhance the broadest portfolio of contact lenses in the industry, and will provide a choice for wearers across all lens-wearing modalities. Vision care revenues are expected to grow by low double digits in 1998, outpacing global market growth. ReNu MultiPlus solution will be available in most markets, and approval for ReNu multi-purpose solution in Japan is anticipated late in 1998. [8] Our new SofLens66 toric lens, for people with astigmatism, will have a significant production cost and technology advantage in a potentially vast market. ReNu MultiPlus solution sets a new standard, thereby ensuring the continued market leadership of Bausch & Lomb. PureVision, a breakthrough continuous wear lens, has entered clinical trials. Operations Review Bausch & Lomb's vision care business is clearly on track and is expected to demonstrate strengthened performance as we continue to focus on four key strategies: differentiate Bausch & Lomb by continuing to develop innovative, technology-based new products, build on brand equity through increased consumer advertising, reduce production costs and leverage our full product line to maximize our share of the lens wearing population. Bausch & Lomb's global leadership in vision care was strengthened in 1997 by important, new product introductions and vigorous expansion in high-growth markets. Total sales increased by 8% in constant dollars and sales of disposable lenses grew by more than 15% for the second year in a row. Leading the company's new product introductions was ReNu MultiPlus solution, a patented soft contact lens cleaning solution that removes protein buildup with every use and eliminates the need for separate enzymatic cleaners for many consumers. Launched in both the United States and Europe in the fall of 1997, it is the first major breakthrough in soft lens care in a decade. ReNu MultiPlus solution sets a new standard, thereby ensuring the continued market leadership of Bausch & Lomb. Breakthrough products and aggressive growth strategies. To meet the rapidly growing demand for daily disposable lenses, in 1997 we more than tripled capacity for SofLens one day lenses at our manufacturing facility in Scotland. Capacity will be more than doubled again in 1998. Our single-use business doubled in Europe in 1997, and a U.S. introduction is planned for mid-1998. We intend to establish a strong presence in this rapidly growing segment. The company's leadership in China's emerging vision care market continued to rise in 1997, with more than 40% growth in revenues, and comparable growth is expected for 1998. In Japan, shipments of Bausch & Lomb disposable contact lenses nearly doubled in 1997, and we gained the leadership position in the two-week disposable category. [9] [Photo: Bausch & Lomb products: SofLens, Medalist, Boston Advance, Renu MultiPlus] Bausch & Lomb's family of contact lenses provides the company with the broadest product portfolio and provides a choice for lens wearers across all modalities. Image adjusted for grindoff. The Boston line of rigid gas permeable lens and lens care products is the solid market share leader around the world. [10] Leverage our full product line. Segment Revenues ($ in millions) [Bar charts] 1994 750 1995 814 1996 869 1997 909 Soft Contact Lens Weighted Average Unit Cost Index 1995 1.00 1996 .90 1997 .66 1998 (est.) .59 [End bar charts] [11] Eyewear [Photos: Various people wearing sunglasses] "We will return the eyewear business to profitability by successfully implementing major cost reduction programs. We will achieve longer term growth through reallocating structural cost to building consumer demand." Dwain L. Hahs Executive Vice President and President - Eyewear Accomplishments Revitalized: Sunglass sales in Europe turned the corner, growing 7% in constant dollars for the year, stimulated by new products, new merchandising and a major pan-European advertising campaign for Ray-Ban sunglasses. Accelerated: Market delivery of all sunglass products improved dramatically in 1997, with back orders down more than 50% during the peak season. The new styles for 1998 were launched five months earlier than ever before, allowing better market penetration and production planning. Acquired: Obtained worldwide rights to the Killer Loop eyewear business, and increased international sales by approximately 50%. Launched: Porsche Design sunglasses were introduced to high-end European retailers in record time. Worldwide marketing will follow in 1998. Outlook While certain markets for sunglasses, including Asia-Pacific, are likely to remain volatile in 1998, we are planning for moderate growth in sales for the eyewear business. Growth will be driven by focused marketing and advertising spending behind our flagship brand, Ray-Ban, funded by reallocation of overhead costs, and continued global expansion of our allied brands. Aggressive cost reductions realized through our global product delivery strategy are expected to contribute to a return to profitability in 1998. As importantly, we fully expect to have visibility this year to further significant improvements in profitability for 1999, building ultimately to our 15% operating margin target - objectives we believe must be met to ensure this business provides added value to Bausch & Lomb investors over the longer term. [12] The global product delivery strategy is transforming Bausch & Lomb's manufacturing process from five focused plants to three fully-integrated product delivery centers that operate on a "build to order" system. The earlier introduction of our 1998 line allows us to participate in the peak sunglass season in the Mediterranean and Southern Hemisphere markets with the freshest styles. Operations Review During 1997, Bausch & Lomb's sunglass business, this segment's largest product line, continued to face significant challenges. Competitive pressures, combined with a slowdown in market growth in the U.S. and certain markets in Asia, contributed to a constant dollar sales decline of 3% for the ongoing eyewear segment. At the same time, significant progress was made on several fronts during 1997- toward improving Bausch & Lomb's cost structure and setting the stage for future sales and earnings growth. Implementation of the global product delivery strategy continued on schedule. This strategy is transforming Bausch & Lomb's manufacturing process from five focused plants to three fully-integrated product delivery centers, that operate on a "build to order" system. The final plant closing is scheduled to be completed by mid-1998. The strategy will yield significant reductions in cost, reduce our inventory requirements and improve our responsiveness to changes in demand. We've seen early signs of the success of our new global advertising campaign, launched in our lead region, Europe, during 1997. Constant dollar sales growth in that region reached 7% for the year. New products continued to be a strong focus within all of our sunglass lines. In 1997, styles and designs introduced since the beginning of 1996 represented more than half of Ray-Ban sunglass sales, and more than two-thirds of all other sunglass brands. More new products. Faster to market. Global marketing programs. New styles for 1998 were introduced to the trade in September 1997, a full five months ahead of any previous year. This was followed by strong orders for these products from the trade in the fourth quarter and early indications of consumer acceptance. The earlier introduction allows us to participate in the peak sunglass season in the Mediterranean and Southern Hemisphere markets with the freshest styles. Importantly, it also gives us feedback on which styles will be this year's best sellers well before the sunglass season in the Northern Hemisphere begins, and allows time to adjust our production planning. [13] [Photos: different pairs of sunglasses] Killer Loop sunglasses' outrageous, witty and often irreverent imagery has proven popular among young, trendy consumers. Porsche Design sunglasses, "precision engineering for the eyes," fill a gap in the Bausch & Lomb portfolio for high-end sunglasses for consumers over age 30. [14] [Photos: different pairs of sunglasses] Transforming product supply processes. Sunglass Manufacturing Overhead Cost Index [Bar chart] 1994 1.00 1995 .92 1996 .91 1997 .71 1998 (est.) .55 [End bar charts] The Arnette line of high-performance, extreme sport sunglasses appeals to young, fashion-forward consumers. [15] Pharmaceuticals Pharmaceuticals/Surgical "New proprietary products such as Lotemax eyedrops will drive major sales and earnings growth." Thomas M. Riedhammer, Ph.D. Senior Vice President and President--Worldwide Pharmaceuticals Accomplishments Advanced: During 1997, Lotemax, the most promising new ophthalmic steroid product in years, received Food and Drug Administration (FDA) "approvable" status. In addition, a New Drug Application was filed with the FDA for Alrex drops for allergic conjunctivitis, the second product in the Lotemax line. Both products received FDA approval in first quarter 1998 and will be launched during second quarter 1998. Launched: A generic equivalent of Polytrim ophthalmic anti-infective was launched in the U.S. with extraordinary success, immediately earning a 95% share of the generic market and a 70% substitution rate. Launched: Liposic, Bausch & Lomb's new gel product for dry eyes, was launched in Germany, strengthening our number-one position for dry eye products in that country. Launched: Bausch & Lomb Computer Eye Drops were launched in the fourth quarter of 1997. Aggressive goals to gain distribution in large volume accounts were reached a full month ahead of schedule. Revitalized: Bausch & Lomb's entire general eye care line was repackaged to leverage the Bausch & Lomb name. Strong double-digit growth is expected for 1998. Outlook Pharmaceuticals segment sales are expected to accelerate in 1998, and earnings are expected to increase in line with sales. The introduction of Lotemax and Alrex anti-inflammatory eyedrops will mark an important step in Bausch & Lomb's strategic shift toward proprietary ophthalmics. Outside the U.S., ophthalmics growth will be driven by new product line introductions in Germany, including Liposic and other Dr. Mann Pharma gel products, plus registration of various Bausch & Lomb products in other European countries, Asia and Latin America. At the end of 1997, Bausch & Lomb had 316 registrations pending in 56 countries. [16] [Photo: Packages of Bauch & Lomb product] Bausch & Lomb's general eye care line was relaunched in 1997 by asking consumers to See How It Feels. Operations Review Bausch & Lomb's pharmaceuticals segment sales improved 7% in constant dollars over 1996. In the U.S., sales increased 17% driven largely by expanded distribution of existing generic products and the highly successful launch of a generic equivalent of Polytrim ophthalmic anti-infective. General eye care sales benefitted from continued strong gains for Opcon-A allergy drops which was up 24% over 1996. Also benefitting 1997 was the fourth-quarter launch of Bausch & Lomb Computer Eye Drops and increased retail distribution behind the relaunch of the entire general eye care line. Our intent to capture a greater share of the proprietary ophthalmic pharmaceutical market was advanced considerably in 1997 with an "approvable letter" from the FDA for Lotemax, a promising new ophthalmic anti-inflammatory. Investing in proprietary ophthalmics. Opening new markets for generics. Developed in partnership with Pharmos Corporation, Lotemax and a companion product, Alrex, are planned for a 1998 U.S. launch. Together, they should earn Bausch & Lomb between 10% and 20% of the steroid segment. In the company's Dr. Mann Pharma subsidiary in Germany, the prescription and OTC businesses were adversely affected by a slow economy, currency fluctuations and mandatory government price reductions. Nevertheless, prescription pharmaceutical sales in Germany were up 10% in constant dollars over the previous year. Both customers and consumers around the world trust the Bausch & Lomb and Dr. Mann Pharma names as sources for high-quality eye care. [Large photo of Bausch & Lomb Computer Eye Drops] [17] Surgical Pharmaceuticals/Surgical "Together, these companies create a world-class competitor in ophthalmic surgery." William M. Carpenter President and Chief Executive Officer [Photos: Bausch & Lomb Building, Hakan S. Edstrom and Robert H. Blankemeyer] Hakan S. Edstrom Vice President and President - Bausch & Lomb Surgical (left) Robert H. Blankemeyer Vice President and Chief Operating Officer - Bausch & Lomb Surgical Acquisitions Create The World's Largest Eye Care Company In December 1997, Bausch & Lomb became the world's largest competitor in the $25 billion global eye care market with the acquisition of Chiron Vision Corporation, the ophthalmic unit of Chiron Corporation, and Storz Instrument Company, a subsidiary of American Home Products Corporation. The combined acquisition cost of $680 million represents Bausch & Lomb's largest investment ever, further reinforcing our commitment to the ophthalmology market, particularly surgical ophthalmology. Chiron Vision, which reported revenues (unaudited) of $213 million in 1997, is a global leader in innovative products for cataract and refractive surgery. Storz, which had revenues (unaudited) of $206 million in 1997, is also a leading international producer of equipment and devices for ophthalmic surgery and markets ophthalmic pharmaceuticals. [Photo: the Storz Millennium Microsurgical System] Meeting the demands of today's ophthalmic surgical environment through the latest technological innovations with a heritage of reliability and an eye on the future...the Storz Millennium Microsurgical System. [18] Together, Chiron Vision and Storz give Bausch & Lomb a commanding presence in the financially attractive cataract surgery market by bringing together two highly complementary product lines. They solidify Bausch & Lomb's position as the leader in in-eye vision correction by establishing a strong position in the rapidly growing refractive surgery market. They also establish a platform for participating in the next frontier of ophthalmic research - the treatment of retinal disease. These acquisitions also enhance our existing ophthalmic pharmaceuticals business with an expanded product portfolio and access to a pipeline of additional new proprietary compounds. Through the integration of Storz and Chiron Vision, Bausch & Lomb will have greater access to the ophthalmic surgeon, an important professional customer for products currently in Bausch & Lomb's portfolio and research pipeline. Bausch & Lomb anticipates that these acquisitions will begin to add substantially to the company's financial performance in 1999, as we realize the benefit of significant cost saving synergies through integrating the businesses. We expect that 1998 will be a transition year, in which the costs necessary to generate longer term savings will offset the operating earnings from the new surgical business. By bringing together these two strong eye care companies with Bausch & Lomb, we create an eye care company with an unsurpassed array of offerings for both the consumer and the eye care professional. [Large photo of eye drop container] [Photo: surgical instruments] Storz offers almost two centuries of experience in producing fine surgical instrumentation. [Photo: Storz line of pharmaceutical products] Storz' line of pharmaceutical products will augment Bausch & Lomb's existing portfolio. [Photo: Hansatome microkeratomes (a surgical tool)] Chiron Vision, with its technologically advanced Hansatome, is the clear leader in the development of microkeratomes used in the most common surgical method for vision correction. [19] Healthcare "Bausch & Lomb's healthcare businesses showed strong growth in revenues and earnings in 1997." William M. Carpenter President and Chief Executive Officer Accomplishments Increased: Charles River Laboratories increased constant-dollar sales by 13%. Biotechnology sales rose sharply by 38%. Increased: For the first time since acquisition, the Miracle-Ear hearing aid business was profitable, and revenues grew more than 20% for the year. Increased: Skin care revenues improved by 7% over 1996 with continued strong growth for Curel hand and body lotion, one of the fastest growing brands in the category. Outlook The businesses within Bausch & Lomb's healthcare segment will continue to be managed to maximize investor value. We will continue to evaluate their longer term value. Overall, segment revenues are expected to grow on par with 1997. Charles River's contract research business is expected to achieve double-digit growth in 1998, as the pharmaceutical industry continues to explore ways to reduce the time required to get new products to market. Miracle-Ear is expected to benefit from improved cost structure, increased retail presence and new technologies introduced during 1997. Bausch & Lomb's skin care business should benefit from increased retail distribution and the planned introduction of two product line extensions under the Curel brand. [20] [Large photo: tray of eggs used for biomedical research] Operations Review Bausch & Lomb's healthcare segment, which includes the Charles River Laboratories, Miracle-Ear and skin care businesses, achieved excellent growth in sales and profits during 1997. Charles River Laboratories, the world's leading producer of purpose-bred animals for biomedical research, increased constant dollar revenues by 13%. Sales of laboratory animals continued to rise, stimulated by product line extensions introduced in 1996. The company's biotechnology business, including diagnostics and special animal services, grew sharply with a 38% increase in sales. Managed to maximize investor return. The Miracle-Ear business was profitable in 1997 for the first time since acquisition. Revenues for the business grew 23%, driven by a strategic shift toward direct retail sales and the launch of a new digital hearing aid technology. Bausch & Lomb's U.S. skin care business continued to be very profitable in 1997. Revenues improved by 7% as Curel, one of the fastest growing hand and body lotion brands, continued its three-year trend of achieving double-digit sales growth. Segment Operating Earnings (excluding restructuring and divestitures) ($ in millions) [Bar chart] 1995 39 1996 43 1997 46 [End bar chart] [Logo: 50 Years of Innovation] [Photo: Lab mouse] In 1997, Charles River Laboratories celebrated 50 years of Contributing to the Search for Healthier Lives. [Photo: Curel and Soft Sense skin care products] Bausch & Lomb's skin care business, which consists of the Curel and Soft Sense brands, improved revenues by 7% over 1996. [21] [Photos of people at work] Human Resources "As leaders, we must understand that our value lies less in our ability to manage the tasks of others and more on looking into the future to identify new horizons and opportunities." Daryl M. Dickson Senior Vice President Human Resources Diversity: A Global Competitive Advantage Bausch & Lomb believes that building a corporate culture of diversity and individual excellence helps us to better meet both investor expectations and customer requirements, while offering our employees greater personal fulfillment. This principle is expressed in the company's commitment to provide an environment open to the expression of ideas, where diversity is valued and frankness is encouraged, and where creativity, innovation, teamwork and receptivity to change are prized and rewarded. In 1997, Bausch & Lomb was one of five companies in the United States honored with the U.S. Labor Department's Exemplary Voluntary Efforts Award for its past efforts to develop innovative programs to increase employment opportunities for minorities, women and people with disabilities. The company believes that it must continuously renew its efforts to develop, manage and retain a diverse workforce, and expects that this issue will receive continued emphasis in 1998. Leadership Initiative: Supporting Our Managers With employees being encouraged to grow as individuals, and workgroup decision-making now central to the way Bausch & Lomb functions worldwide, the character of our corporation is evolving at a rapid pace. Change of this magnitude challenges the tenets of traditional leadership. To support our managers during this essential transition and advance their leadership capabilities, Bausch & Lomb has, since 1996, introduced managers to the Leadership Development Continuum, a series of courses on effective workgroup management and facilitation. [22] [Photo: Stephen C. McCluski] Financial Performance "EVA has our people focusing on the balance sheet as much as they do on earnings, and being very conscious of the cost of the company's capital when making financial decisions." Stephen C. McCluski Senior Vice President and Chief Financial Officer Restructuring: Trimming $100 Million More In early 1996, we committed to removing $50 million of annual costs from our businesses, primarily through administrative efficiencies, merging of functions, consolidating warehousing and the closing of the company's Oakland, Maryland eyewear plant. Half of those savings were achieved in 1997. The remainder will come in 1998. A second, more strategic cost-reduction initiative was announced in the second quarter of 1997. We intend to cut an additional $100 million in costs through further administrative efficiencies and facility rationalizations. Ninety percent of the benefits will be realized by 1999 and all of them by the year 2000. In addition to reducing costs, the restructuring will improve Bausch & Lomb's speed to market and customer responsiveness. Approximately one-third of this savings will result in improved operating margins, while the remainder will be re-allocated to revenue-generating activities such as new product development and increased marketing efforts. EVA: Attending To The Cost Of Capital In 1997, Bausch & Lomb adopted EVA as a key decision-making tool to be utilized by the company. With EVA, financial performance is based on profit after the cost of the company's capital, a total-cost equation that improves shareholder value. Simply put, employees are encouraged to ensure that every dollar spent in the business yields an adequate return on investment. To ensure this, the Board of Directors and Committee on Management approved adoption of EVA as the basis for the company's incentive compensation system. Key Financial Goals During the next two to three years, our first priority for free cash flow will be to pay down debt, with the ultimate goal of reducing our debt-to-capital ratio to approximately 50%. We will continue to consider strategic acquisitions which enhance existing businesses, and will re-instate our share repurchase program to offset stock option exercises. [23] Board of Directors [Photos: People in lab (wearing protective lab gear) looking at computer monitor, and in discussion] Bausch & Lomb's Board of Directors is involved in the key strategic initiatives of our core businesses. They recently toured the state-of-the-art cast-mold contact lens manufacturing facility in Rochester, New York. [24] Report Of Management The following 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 Report Of Independent Accountants is on page 62 of this report. 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 27, 1997, the internal control system was functioning effectively and accomplished the objectives discussed herein. /s/ William H. Waltrip /s/ William M. Carpenter /s/ Stephen C. McCluski William H. Waltrip William M. Carpenter Stephen C. McCluski Chairman President and Senior Vice President Chief Executive Officer and Chief Financial Officer Report Of The Audit Committee The audit committee of the board of directors, which held three meetings during 1997, is composed of four outside directors. The chair of the committee is Alvin W. Trivelpiece, Ph.D. The other members are Domenico De Sole, Ruth R. McMullin and Linda Johnson Rice. The audit committee meets with the independent accountants, management and the internal auditors to provide reasonable assurance that management fulfills its responsibilities in the preparation of the financial statements and in the maintenance of an effective system of internal controls. The audit committee reviews the performance and fees of the independent accountants, recommends their appointment and meets with them and the internal auditors, without management present, to discuss the scope and results of their audit work. Both the independent accountants and the internal auditors have full access to the audit committee. /s/ Alvin W. Trivelpiece Alvin W. Trivelpiece, Ph.D. Chair, Audit Committee Bausch & Lomb Incorporated and Consolidated Subsidiaries [25] 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 1998 outlook. Results Of Operations Bausch & Lomb's operating results are reported in four business segments: vision care, eyewear, pharmaceuticals and healthcare. The vision care segment includes contact lenses and lens care products. The eyewear segment is comprised of sunglasses, vision accessories and the divested sports optics and thin film coating businesses. The pharmaceuticals segment includes prescription pharmaceuticals and over-the-counter (OTC) medications. The healthcare segment is comprised of biomedical products and services, hearing aids, skin care products and the divested oral care and dental implant businesses. The following table summarizes the proportion of reported revenues and earnings derived from each business segment: Revenues Earnings ----------------------------------------------------- 1997 1996 1995 1997 1996 1995 - --------------------------------------------------------------------- Vision care 47% 45% 42% 94% 76% 59% Eyewear 26% 27% 30% (29%) (2%) 16% Pharmaceuticals 10% 10% 9% 15% 12% 14% Healthcare 17% 18% 19% 20% 14% 11% ===================================================== Net Sales Revenues in 1997 decreased $11 or 1% from 1996. A decrease in sales due to the divestiture of the oral care and dental implant businesses in late 1996, as well as declines in sales of sunglasses and unfavorable currency, was partially offset by strong sales of contact lenses. In 1996, revenues decreased $6 partially due to a decline in sales in the oral care business and the divestiture of the sports optics business in early 1995. While 1996 reflected strong growth of contact lens revenues, this was partially offset by declines in sunglass sales and unfavorable currency. On a constant dollar basis (that is, adjusted for changes in foreign currency exchange rates), 1997 revenues improved 3% over the prior year. Constant dollar revenues in 1996 increased 2% over 1995. Operating Earnings Operating earnings in 1997 decreased $43 or 22% due to an increase in restructuring charges and operating losses in the eyewear segment, partially offset by growth in the vision care, pharmaceuticals and healthcare segments. For 1996, operating earnings decreased $20 or 9%, as reduced earnings in the eyewear and pharmaceuticals segments were partially offset by improved earnings in the vision care segment. Comparability To facilitate an analysis of the company's operating results, certain significant events in each of the past three years should be considered. Unless specified as "reported," amounts in the remainder of this "Results Of Operations" section have been prepared using "comparable basis" results, which exclude the items described below. Restructuring Costs In each of the three years covered by this review, the company's board of directors approved plans to restructure portions of each of the company's business segments and certain corporate administrative functions. These plans are described more fully in Note 4-Restructuring Charges, and represent the company's efforts to enhance its competitive position and to reduce the annual impact of general and administrative, logistics and distribution costs by streamlining functions and closing certain facilities. In 1997, pre-tax restructuring charges of $72 were recorded. The after-tax impact of these charges was $46 or $0.83 per diluted share. In 1996, pre-tax restructuring charges were $15. The after-tax impact of these charges was $11 or $0.19 per Bausch & Lomb Incorporated and Consolidated Subsidiaries [26] diluted share. In 1995, pre-tax restructuring charges of $27 were recorded. The after-tax impact of these charges was $17 or $0.30 per diluted share. Divestitures In December 1997, the company divested the Thin Film Technology Division, which was reported in the eyewear segment. This business contributed revenues of $17, $20 and $29 in the years 1997, 1996 and 1995, respectively. The business had an operating loss of $3 in 1997, broke even in 1996 and had operating earnings of $3 in 1995. There was no material gain or loss to the company on the divestiture. During 1996, the company divested two of its non-core businesses whose results were reported in the healthcare segment. The dental implant business, which was sold in November 1996, and the Oral Care Division, which was divested in September 1996, contributed combined revenues of $50 and $78 in 1996 and 1995, respectively. Combined operating losses of these divested businesses were $8 in 1996 and $4 in 1995. The company recorded an after-tax gain of $2, or $0.04 per diluted share on the divestitures. In May 1995, the company completed the sale of its Sports Optics Division. This business contributed $18 to eyewear segment revenues in 1995; operating earnings were break-even. Net earnings in 1995 reflected an after-tax gain on the divestiture of $21 or $0.36 per diluted share. Litigation As described in Note 17-Litigation, the company agreed to settle a matter in litigation which resulted in a 1997 pre-tax charge of $21. The after-tax impact of this charge was $13 or $0.24 per diluted share. The company's assessment of the probable future impact of certain other legal matters led the company to record pre-tax litigation provisions of $16 in 1996 and $22 in 1995. On an after-tax basis, such charges amounted to $10 or $0.18 per diluted share in 1996 and $14 or $0.24 per diluted share in 1995. Revenues And Earnings By Business Segment A summary of reported sales and earnings by business segment, corporate administration expense and operating earnings, and comparable basis results follows:
1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Comparable Comparable Comparable As Reported Basis As Reported Basis As Reported Basis - ---------------------------------------------------------------------------------------------------------- Net Sales Vision care $ 908.9 $ 908.9 $ 869.1 $ 869.1 $ 813.7 $ 813.7 Eyewear 492.1 475.5 525.1 504.8 581.4 534.4 Pharmaceuticals 190.6 190.6 189.0 189.0 181.5 181.5 Healthcare 324.1 324.1 343.6 294.0 356.3 278.2 ----------------------------------------------------------------------------------- Total $1,915.7 $1,899.1 $1,926.8 $1,856.9 $1,932.9 $1,807.8 =========================================================================== ======== Operating Earnings Vision care $ 189.9 $ 209.3 $ 182.1 $ 190.7 $ 158.5 $ 161.7 Eyewear (59.2) (23.2) (5.6) (0.8) 43.7 57.7 Pharmaceuticals 31.5 36.5 28.6 28.6 38.5 38.5 Healthcare 39.9 45.8 34.8 42.5 30.8 39.0 ----------------------------------------------------------------------------------- 202.1 268.4 239.9 261.0 271.5 296.9 Corporate administration (54.1) (45.5) (49.1) (47.6) (60.9) (57.9) ----------------------------------------------------------------------------------- Total $ 148.0 $ 222.9 $ 190.8 $ 213.4 $ 210.6 $ 239.0 =========================================================================== ========
Consolidated revenues have increased at compound annual rates of 4.6% and 4.8% for the most recent three- and five-year periods, respectively. Revenues in 1997 increased $42 or 2% from 1996 and improved 6% on a constant dollar basis. In 1996, revenues increased $49 or 3% and improved 5% on a constant dollar basis. Bausch & Lomb Incorporated and Consolidated Subsidiaries [27] Vision Care Segment Results 1997 Versus 1996--Vision care revenues include sales of contact lenses, representing 45% of total 1997 segment revenues, and lens care products, comprising 55% of revenues. An increase in revenues of $40 or 5% was driven primarily by sales of contact lenses. On a constant dollar basis, segment revenues increased 8%. Constant dollar contact lens revenues increased 13%. Strong sales of Medalist lenses in Japan, increased shipments of SofLens66 lenses in the U.S. and Europe and expansion of SofLens one day lenses (formerly Award) in Europe contributed to the growth. The increase was partially offset by a decline in traditional lenses, as the expected shift to planned replacement and disposable lenses (collectively PRP) continued, and by a moderate decrease in rigid gas permeable (RGP) lenses, most notably in Europe. Lens care products revenues increased 4% on a constant dollar basis, benefiting from the launch of the new premium-priced solution, ReNu MultiPlus, in the U.S. and Europe and increased revenues for other lens care products outside the U.S. Segment earnings improved $19 or 10%, and operating margins improved to 23% in 1997 from 22% in 1996. The positive results reflect the impact of higher sales and the continuing effects of cost reduction efforts. 1996 Versus 1995--Revenues in this segment improved $55 or 7%, led by a 17% increase in sales of contact lenses. On a constant dollar basis, segment revenues increased 9%. Strong constant dollar gains for PRP lenses, such as Optima FW and SofLens66, in all regions and incremental sales of SofLens one day more than offset the decline in sales of traditional lenses. Revenues from RGP lenses in constant dollars were above 1995, with gains in the U.S. and the Asia-Pacific region. Soft lens solutions reflected modest constant dollar gains, with revenue growth from ReNu products offsetting declines in traditional solutions such as saline, daily cleaners and enzymatic tablets. Worldwide constant dollar revenues from RGP solutions declined from 1995 due to the timing of promotions. Operating margins in this segment were 22% in 1996 compared to 20% in 1995. Contact lens earnings in 1996 were positive for the first time in several years, driven by increased sales and cost reduction efforts. Segment earnings in 1996 were $191 compared to $162 in 1995, an increase of 18%. Eyewear Segment Results 1997 Versus 1996--Segment revenues declined $29 or 6% compared to 1996. On a constant dollar basis, segment revenues declined 3%. These trends reflect results for sunglasses, the primary product in the segment. Sunglass sales in the U.S. declined 6%, due in part to lower sales to the segment's largest customer. In addition, increased competition for Ray-Ban and Revo products and a loss in market share for Ray-Ban products contributed to the shortfall. Offsetting this trend were favorable sales of new sunglass styles, including the early launch of the 1998 Ray-Ban collection. Outside the U.S., constant dollar sales of sunglasses were slightly below prior year, primarily due to sluggish retail markets in the Asia-Pacific region. The segment operating loss increased to $23 in 1997, including an $11 charge recorded in the first quarter for the cost of exiting certain Ray-Ban product lines and the write-off of the company's equity investment in a start-up eyewear technology company. The impact of the sales shortfall, higher manufacturing costs due to decreased production volumes, higher marketing and advertising costs for sunglass products and higher amortization expense associated with the first quarter acquisition of the Killer Loop eyewear business were partially offset by cost savings realized from recent restructuring actions. 1996 Versus 1995--Segment revenues declined $30 or 6% in 1996 as compared with 1995. On a constant dollar basis, revenues declined 4%. New Ray-Ban sunglasses, such as Sidestreet, Orbs and Inertia styles, and new offerings in the Killer Loop Street Sport and Revo Shapes collections, as well as incremental revenues from the first quarter acquisition of the Arnette sunglass line, contributed significantly to total sunglass sales. These positive results were more than offset by an erosion in sales of more traditional product designs, particularly in the Ray-Ban line, by new product supply issues and by a second-half reduction in orders, primarily in the U.S., from the segment's largest customer. Bausch & Lomb Incorporated and Consolidated Subsidiaries [28] Eyewear segment losses of $1 in 1996 were $58 lower than 1995 results, reflecting the adverse impacts of the sales shortfalls, the continued shift to lower-margin new products, unfavorable manufacturing variances due to reduced production volumes and increased provisions for obsolescence. Pharmaceuticals Segment Results 1997 Versus 1996-Segment revenues increased $2 or 1% over the prior year as strong U.S. sales were partially offset by a decline in revenues for the company's Dr. Mann Pharma subsidiary in Germany. On a constant dollar basis, sales increased 7%. Contributing to a double-digit increase in the U.S. was the successful launch of Trimethoprim, the new generic ophthalmic equivalent to Polytrim, a drug to prevent eye infections. Trimethoprim sales for the year attained a greater than 95% market share for the generic product. Muro, a hypertonic ophthalmic solution and ointment for the temporary relief of corneal edema, experienced solid sales for the year. The success of Minoxidil, a generic version of Rogaine, continued in 1997 as did the sales of a variety of generic pharmaceutical products introduced prior to 1994. The U.S. general eye care business benefited from the continued strength of Opcon-A, an antihistamine/decongestant, and Moisture Eyes PM, formerly Duolube, a preservative-free ointment used for nighttime relief of dry eyes. Revenues also benefited from the launch of Bausch & Lomb Computer Eye Drops, the first product on the market positioned for computer users to soothe dry, strained and tired eyes, as well as the relaunch of several other key eye care products. Constant dollar revenues for prescription pharmaceuticals in Europe were up 10% from the prior year reflecting a normalization of sales in the second half of 1997, whereas European OTC pharmaceuticals experienced a 13% constant dollar decline in revenue versus 1996. This sales shortfall was attributable to pharmacy inventory reductions in Germany due to continued poor economic conditions. Pharmaceutical segment earnings of $37 improved 28% in 1997 from the year ago period. This improvement was driven by price and volume increases for many of the U.S. generic products partially offset by unfavorable manufacturing variances and higher allowances associated with the competitive nature of the generic pharmaceuticals industry. Research and development was $14 or 7.4% of sales in 1997, compared to $13 or 7.1% of sales in 1996, as the company continued to invest in its pharmaceutical business. 1996 Versus 1995-Worldwide pharmaceutical segment revenues improved $8 or 4% versus 1995. On a constant dollar basis sales improved 7%. Revenues for products sold in the U.S. advanced 17% attributable to the success of two new product launches: Minoxidil and Ocutricin, an antibiotic short-term solution to treat superficial eye infections. Crolom, launched in 1995 for ocular inflammation, witnessed double-digit growth for the year. Tobramycin, a generic version of Tobrex, experienced a significant decline in sales compared to 1995 due to heavy competition resulting in the loss of both market share and margins. OTC products in the U.S. attained a 5% increase in sales, benefiting from improved sales of Opcon-A, introduced in the fourth quarter of 1994, and Moisture Eyes PM. Revenues for prescription pharmaceuticals in Europe advanced from the prior year, improving 8% on a constant dollar basis, despite uncertainty in the fourth quarter regarding the German government's proposed cutback on prescription reimbursements. The company's line of European OTC products fell 2% in constant dollars versus 1995 although market share remained steady as the whole industry struggled with the poor economic conditions. Reported pharmaceutical segment earnings of $29 declined $10 or 26% from the 1995 level. Operating margins decreased as higher spending for advertising, selling and research and development, as well as unfavorable currency movements in Europe, was only partially offset by price and volume increases for many U.S. generic products. Research and development costs increased to 7.1% of sales versus 5.1% of sales in 1995 as the company moved forward with its growth plan for generic and proprietary ophthalmic products. Healthcare Segment Results 1997 Versus 1996-This segment includes results for biomedical products and services, hearing aids and skin care products, which contributed 66%, 19% and 15% of total 1997 segment revenues, respectively. Revenues increased $30 or 10%, over 1996 with gains in all product lines. Revenues were up 14% over the prior year on a constant dollar basis. Bausch & Lomb Incorporated and Consolidated Subsidiaries [29] Revenues in the biomedical business increased 13% on a constant dollar basis reflecting increases in purpose-bred animals due to product line extensions and price increases, and strong growth in sales of biotech products and services. Hearing aid revenues advanced 23% over 1996, aided by an increase in company-owned retail outlets and sales of new products. Skin care product revenues were up 7%, led by an increase in sales and market share for Curel products partially offset by a decline in revenues for the Soft Sense line. Segment earnings increased 8% on the strength of higher sales, with the hearing aid business profitable for the first time since the company acquired the business in 1993. 1996 Versus 1995-The healthcare segment experienced 6% revenue growth over 1995 and grew 9% in constant dollars with gains in all product lines. Constant dollar revenues increased 10% for the company's biomedical business, reflecting the impact of incremental sales of purpose-bred laboratory animals and other product line extensions. Revenues for the Miracle-Ear line of hearing aids rose 9% due to sales of new in-the-ear products and increased sales in company-owned stores. Skin care revenues advanced 5% for the year, led by 15% growth in the Curel product line, including Alpha Hydroxy and Nutrient Rich products, offset by a 12% decline in the Soft Sense line due to reduced consumer demand. Healthcare segment earnings rose 9% with improvements in all businesses resulting from the margin impact of sales increases, slightly offset by higher operating expenses. While the hearing aid business showed a slight loss in 1996, this business continued to show improvement in operating results. Operating Costs And Expenses The ratio of cost of products sold to sales was 45.7% in 1997, versus 44.7% and 43.4% for 1996 and 1995, respectively. The unfavorable trend in 1997 reflected a $9 charge for the cost of exiting certain Ray-Ban product lines recorded in the first quarter, unfavorable manufacturing variances for eyewear and pharmaceuticals as well as lower margins in the company's core segments. Vision care margins declined slightly due to product mix while eyewear margins reflected the unfavorable impact of decreased volumes. Pharmaceuticals margins were negatively impacted by the downward pressure on generic pharmaceutical selling prices. The unfavorable ratio in 1996, when compared to 1995, resulted from a decline in sunglass sales in combination with a shift in sales mix toward lower-margin sunglass styles and PRP lenses. Selling, administrative and general expenses, including corporate administration, were 39.0% of sales in 1997 compared to 40.1% in both 1996 and 1995. The year-over-year favorable ratio reflected decreases in marketing and advertising, lower general administration costs and reduced spending in the pharmaceuticals segment as well as lower selling expenses due mainly to consolidation of certain responsibilities in the vision care segment. Offsetting these favorable variances was a $2 charge recorded in the first quarter of 1997 for the write-off of the company's equity investment in a start-up eyewear technology venture. Corporate administration expenses were 2.4% of sales in 1997, versus 2.6% and 3.2% in 1996 and 1995, respectively. These trends reflect efforts in expense reduction resulting from company-wide restructuring programs. The 1995 expense included $7 for retirement and other benefits for the company's former Chief Executive Officer. Excluding this charge, 1995 corporate administration expenses represented 2.8% of sales. Research and development expenses totaled $66 in 1997, a decrease of $4 or 5% from 1996. In 1995, these costs were $59. This represented 3.5% of sales in 1997 versus 3.8% and 3.3% in 1996 and 1995, respectively. The 1997 decrease in expense was due in large part to favorable project spending as efforts were being made to consolidate research and development functions in the vision care segment. Research and development is expected to increase in 1998 to support development and approval of new products, particularly in the vision care and pharmaceuticals segments. The increase in the 1996 levels demonstrated the significant investment in new contact lens technology and the development of new pharmaceutical products. Bausch & Lomb Incorporated and Consolidated Subsidiaries [30] Revenues And Earnings By Geographic Region A summary of sales and earnings by geographic region follows:
1997 1996 1995 ----------------------------------------------------------------------------------- Comparable Comparable Comparable As Reported Basis As Reported Basis As Reported Basis - ----------------------------------------------------------------------------------------------------------- Net Sales Europe, Middle East & Africa $ 481.9 $ 474.9 $ 500.8 $ 479.7 $ 471.0 $ 441.4 Asia-Pacific 356.6 356.0 346.6 340.7 345.3 336.4 Canada & Latin America 110.5 110.5 116.1 112.4 119.0 112.2 U.S. 966.7 957.7 963.3 924.1 997.6 917.8 ----------------------------------------------------------------------------------- Total $1,915.7 $1,899.1 $1,926.8 $1,856.9 $1,932.9 $1,807.8 =========================================================================== ======== Operating Earnings Europe, Middle East & Africa $ 58.8 $ 73.6 $ 74.7 $ 80.5 $ 93.2 $ 96.3 Asia-Pacific 20.4 23.1 36.1 37.4 43.6 42.7 Canada & Latin America (0.8) 3.3 3.6 3.8 (2.0) (1.2) U.S. 69.6 122.9 76.4 91.7 75.8 101.2 ----------------------------------------------------------------------------------- Total $ 148.0 $ 222.9 $ 190.8 $ 213.4 $ 210.6 $ 239.0 =========================================================================== ========
Sales outside the U.S. totaled $941 in 1997, an increase of $9 from 1996. Non-U.S. sales represented 50% of consolidated revenues in 1997 and 1996 and 49% in 1995. European revenues in 1997 were essentially even with the prior year on a percentage basis. However, in constant dollars revenues rose 7% led by sales growth for PRP lenses and lens care products, which benefited from the introduction of ReNu MultiPlus solution, offset by lower pharmaceuticals results. Sales in the Asia-Pacific region improved $15 or 4%. On a constant dollar basis, sales increased 12% due to growth for vision care products. Sunglass sales throughout the region were lower due to country-specific economic issues and competitive pressures. In Canada and Latin America, sales fell $2 or 2% from 1996. Lower lens care products and eyewear sales in Canada offset increased demand for sunglasses in Latin America and PRP lenses throughout the region. U.S. revenues in 1997 increased $34 or 4% from the prior year. Lower sales of Ray-Ban and Revo sunglasses were more than offset by growth in PRP lenses and U.S. generic pharmaceuticals. Growth in U.S. healthcare results included increased sales of Miracle-Ear hearing aids and Curel products. Sales outside the U.S. in 1996 increased $43 or 5% from 1995. Results were driven by the European region where revenues increased $38 or 9% versus the prior year, and 11% on a constant dollar basis. Strong contact lens performance, especially in the PRP line, and incremental sales of SofLens one day contributed to the improvement. Increased shipments of lens care products, somewhat offset by price declines, also contributed to the year-over-year European growth. Sales in the Asia-Pacific region increased 12% on a constant dollar basis. The region demonstrated double-digit sales growth in constant dollars for vision care products while sunglass sales, as a result of intense competitive pressures, were below 1995 levels. In Canada and Latin America, sales were also relatively flat to 1995, where modest growth in soft lens solutions and PRP lenses in Canada was offset by lower sunglass sales throughout most of the region. In the U.S., 1996 sales, including incremental sales from Arnette sunglasses, increased $6 or 1% from 1995. Vision care sales improved with growth in the Optima, Gold Medalist toric and SofLens66 product lines. Sunglass sales, however, fell versus 1995 as a significant shortfall in traditional styles was only partially offset Bausch & Lomb Incorporated and Consolidated Subsidiaries [31] by the success of the company's new product launches. This, in combination with reduced second-half orders from the segment's largest customer, contributed heavily to the decline in overall U.S. sunglass sales. In healthcare, skin care revenues were up from 1995 due primarily to an increase in Curel sales. Operating earnings in markets outside the U.S. in 1997 decreased $22 or 18% from 1996, and represented 45% of total operating earnings in 1997 versus 57% and 58% in 1996 and 1995, respectively. The drop in earnings for 1997 was due mainly to difficulty in the eyewear segment, where margins were impacted by changes in sales mix toward lower margin new products from the more profitable traditional products and adverse currency impacts. A change in sales mix for vision care products away from higher margin lens care products towards contact lenses, as well as adverse currency, were also factors. In the U.S., 1997 operating earnings increased $31 or 34% versus prior year. Margins were slightly lower than prior year, however, total profitability was maintained through savings in operating expenditures, especially marketing and advertising and research and development. Operating earnings in markets outside the U.S. in 1996 decreased $16 or 12% from 1995. The 1996 earnings decline was attributed to sales of lower-margin new sunglass styles, adverse currency impacts and an increase in advertising expenditures. Operating earnings in the U.S. in 1996 decreased $10 or 9% from 1995 in large part due to margin impacts of lower sunglass and lens care products sales, partially offset by improved profitability in contact lenses. Other Income And Expense Interest and investment income was $40 in 1997, $43 in 1996 and $39 in 1995. The decrease in 1997 from 1996 was attributable to lower investment levels and interest income recorded in 1996 on an income tax refund, partially offset by higher interest rates. The increase in 1996 over 1995 was primarily due to interest on the tax refund and to higher income generated from interest rate swaps, partially offset by lower interest rates. Interest expense was $56 in 1997, $52 in 1996 and $46 in 1995. The 1997 increase over 1996 was primarily due to higher debt levels and higher interest rates, while the 1996 increase over 1995 was due primarily to higher debt levels partially offset by lower interest rates. The company pursues an essentially neutral strategy with respect to interest rate movements. Its policy is to maintain, within reasonable parameters, a balance between floating-rate investments, which are predominately held outside the U.S., and floating-rate debt, which represents primarily U.S. obligations. To the extent this natural hedge position becomes unbalanced, the company may enter into interest rate swap agreements or undertake long-term fixed-rate borrowings, the proceeds from which may be used to repay short-term debt. As a result of this practice, the company's exposure to the normal rise and fall of U.S. interest rates is mitigated. The company does not engage in foreign currency speculation. Its objective is to hedge identified transaction exposures on an after-tax basis to minimize the impact of exchange rate movements on operating results. The company selectively hedges exposures arising in countries with hyperinflationary economies. Transaction gains of $9 and translation losses of $2 resulted in net foreign currency gains of $7 in 1997. In 1996, net foreign currency gains of $2 reflected transaction gains of $3 offset by translation losses of $1. In 1995, net losses were $6 and were comprised of $2 transaction losses and $4 translation losses. The favorability in 1997 and 1996 was primarily due to premium income on foreign exchange contracts hedging investments in selected subsidiaries. Reduced translation losses resulting from increased economic stability in hyperinflationary economies contributed to the 1996 favorability. Income Taxes The company's reported tax rate was 38.7% in 1997 as compared to 37.7% in 1996 and 36.9% in 1995. The higher 1997 and 1996 rates reflected the impact of restructuring and litigation charges and the net gain on divestitures (collectively non-recurring charges) and shifts in geographic earnings. Excluding non-recurring charges, the ongoing tax rate was 37.4%, 37.6% and 35.6% for 1997, 1996 and 1995, respectively. Bausch & Lomb Incorporated and Consolidated Subsidiaries [32] Net Earnings And Earnings Per Share Reported net earnings of $49 or $0.89 per diluted share in 1997 declined significantly from the 1996 reported amounts of $83 or $1.47 per diluted share. The decrease is primarily attributable to the operational matters discussed above, as well as the net impact of non-recurring charges. Results for 1996 decreased from the reported 1995 amounts of $112 or $1.93 per diluted share due to the operational matters discussed above and the net impact of non-recurring charges. Liquidity And Financial Resources The company evaluates its liquidity from several perspectives, including its ability to generate earnings, positive cash flows and free cash flow, its financial position, its access to financial markets and the adequacy of working capital levels. The company has a stated goal to maximize free cash flow, which is defined as cash generated before the payment of dividends, the borrowing or repayment of debt, stock repurchases and the acquisition or divestiture of businesses. The following section is presented on a reported basis. Cash Flows From Operating Activities Cash provided by operating activities totaled $216 in 1997. This favorability was driven primarily by the timing of income tax payments and refunds and by the lowering of inventory levels. Free cash flow for 1997 was positive $68, versus a negative $47 for 1996. This increase was primarily attributable to the operating factors cited above. In 1996, operating activities generated $89 in cash flow, a significant decrease from 1995. Lower earnings, increased inventory and accounts receivable and reduced levels of accounts payable and income taxes all contributed to the unfavorable comparison. Cash Flows From Investing Activities Cash used in investing activities was $175 in 1997. Capital expenditures totaled $126, a significant portion of which supported expanded contact lens manufacturing capacity. Cash outflows for acquisitions were $49, primarily for the purchase of Killer Loop S.p.A., a manufacturer of sunglasses based in Italy. Prior to the acquisition, the company had an exclusive agreement with Killer Loop S.p.A. to market its products. Cash realized in 1997 from divestitures reflected the sale of the Thin Film Technology Division. In 1996, cash used in investing activities was $142. Capital expenditures were $130 and included spending for new contact lens technology and enhanced sunglass manufacturing processes. Cash paid for acquisitions was $86 as the company expanded its presence in both the sunglass sport and the SofLens one day contact lens markets with the purchases of Arnette Optic Illusions Inc. and Award plc, respectively. Divestitures yielded $78 as the company sold its oral care and dental implant businesses. Cash Flows From Financing Activities In 1997, $13 was used in financing activities. The primary inflow was $214 from long-term debt proceeds, primarily issuances under the company's medium-term note program. This inflow was more than offset by dividend payments, repayment of long-term debt and net repayments of short-term debt. During 1997, the company repurchased 500,000 Common shares, exhausting all share repurchases authorized by the board of directors. Cash provided by financing activities during 1996 was $29. Funds were used to repay long-term debt, repurchase Common shares and pay dividends. Proceeds from debt, primarily long-term, more than offset the cash outflows. Financial Position The company's objective of maximizing its return on shareholders' equity requires the cost of capital to be optimized. The company uses debt financing to lower the cost of capital. In total, short- and long-term borrowings were $855 in 1997, $718 in 1996 and $574 in 1995. As described in Note 9--Debt, the Bausch & Lomb Incorporated and Consolidated Subsidiaries [33] increase in long-term debt in 1997 was due in part to $75 associated with the adoption of new accounting rules which required the company to classify proceeds from its new trade receivable securitization agreement as debt. The ratio of total debt to capital stood at 51.1%, 44.9% and 38.2% at year end 1997, 1996 and 1995, respectively. Subsequent to year end the company increased its short-term borrowings by $680 to finance acquisitions. Cash and short-term investments totaled $184 in 1997, $168 in 1996 and $195 in 1995. Access To Financial Markets Bausch & Lomb's reputation, coupled with its financial position and cash flows, assures access to financing in markets around the world. The company maintains U.S. revolving credit agreements, with both 364-day and 5-year terms, totaling $1,200. The interest rate under these agreements is based on the LIBOR rate, or, at the company's option, the higher of several other common indices. No debt was outstanding under these agreements as of December 27, 1997. In addition, the company maintains other lines of credit on which it may draw to meet its financing requirements. Subsequent to year end the company filed a $500 shelf registration with the Securities and Exchange Commission, under which it will be able to borrow in the long-term U.S. public markets. Following the announcement of the company's intent to acquire Chiron Vision Corporation and Storz Instrument Company (see Note 2-Subsequent Events), both Standard & Poor's and Moody's Investors Service placed the company's long-term debt under review and subsequently lowered their ratings of this debt from A-minus to BBB and from A-3 to Baa2, respectively. Concurrent with this rating action, the company's commercial paper rating was confirmed at A-2 by Standard & Poor's and P-2 by Moody's Investors Service. The company believes the lowering of its long-term debt rating does not restrict its ability to raise funds in the capital markets at reasonable costs. Concurrent with filing the shelf registration discussed above, both Standard & Poor's and Moody's Investors Service confirmed the company's long-term debt rating. After its acquisition of Chiron Vision Corporation and Storz Instrument Company, the company believes its existing and planned credit facilities will provide adequate liquidity to meet obligations, fund capital expenditures and invest in other potential growth opportunities. When a portion of the $680 short-term borrowings used to fund these acquisitions is converted to long-term debt, the company will pay a higher rate of interest on such portions. Working Capital Working capital was $203 at year end 1997 as compared to $19 and $71 at year end 1996 and 1995, respectively. The current ratio was 1.2, 1.0 and 1.1 at year end 1997, 1996 and 1995, respectively. Dividends The dividend on Common stock, declared and paid quarterly, totaled $1.04 per share for each of the years 1997 and 1996 and $1.01 per share for 1995. Quarterly dividends were raised 6% to $0.26 per share in July 1995. The company has a goal of maintaining a payout rate of between 30% to 35% of the previous year's earnings before non-recurring charges. Future dividend increases are not certain. Return On Equity And Capital Return on average shareholders' equity was 5.9% in 1997, compared with 9.2% in 1996 and 11.9% in 1995. The decrease in 1997 was the result of the unfavorable impact of non-recurring charges and lower earnings in the eyewear segment, partially offset by higher earnings in the other segments. The decrease in 1996 reflected the unfavorable impact of the non-recurring charges and lower earnings in the eyewear segment. Return on average capital employed was 5.0% in 1997, 7.2% in 1996 and 9.2% in 1995. The changes for both 1997 and 1996 were due primarily to the matters discussed above, as well as to increases in the levels of debt on a year-over-year basis. Bausch & Lomb Incorporated and Consolidated Subsidiaries [34] Outlook During 1998 the company expects its sales and operating performance in the vision care, pharmaceuticals and healthcare segments to be consistent with 1997 trends with the eyewear segment exhibiting a return to profitability. These expectations exclude the impact of currency, which would have a negative impact if exchange rates remain at December 1997 levels. Since the company operates globally, the businesses are subject to fluctuations in currencies, which can have a material effect on non-U.S. sales and the results of consolidated operations. The company's vision care segment will continue to focus on four key strategies: leveraging its complete product line, growing revenues and market share through the introduction of new products, investing the savings reaped by the company's restructuring efforts in consumer advertising to support new products, and maintaining efforts necessary to lower production costs, which remains a critical goal in light of the continuing trend in contact lens wearing patterns from traditional to lower cost PRP lenses. Revenue growth on a constant dollar basis is anticipated to remain strong, led by non-U.S. sales increases. Margins should remain at their current levels. The revenue growth should be driven by new product expansion in both contact lenses and lens care products. Sales for contact lenses are expected to benefit from the introduction of the company's single use lens, SofLens one day, in the U.S. and the worldwide introduction of SofLens66 toric. Lens care product revenues worldwide should benefit from the 1997 second-half launch of ReNu MultiPlus solution. Key strategies for the eyewear segment in 1998 include strengthening the brand leadership of Ray-Ban sunglasses, improving the company's product delivery capabilities and expanding brands outside the U.S. Revenues in the U.S. are expected to increase slightly, reflecting the benefit of reallocating administrative spending to new product development, consumer advertising and merchandising efforts. Growth outside the U.S. is forecasted to grow at a more rapid pace driven by the continued expansion of the Killer Loop, Porsche Design, Arnette and Revo lines into international markets. In consideration of the volatile economic situation in Southeast Asia, the company has reduced its expectations for those markets. The company anticipates that operating earnings in this segment will be positive in 1998 as it benefits from lower production costs, reductions in administrative expenses and improvement in product mix. As in the past, success in the eyewear business will require innovative design, marketing expertise and flexible delivery and logistical capabilities. An inability to reduce high levels of inventory of certain eyewear styles or delays or difficulties with new product introductions or product enhancements could negatively impact the company's future business results. The pharmaceuticals segment is committed to expanding its line of proprietary ophthalmic drugs through collaborative ventures, continuing to aggressively launch new generics as products come off patent, and penetrating markets outside its current U.S. and German bases. Revenue growth in 1998 is expected to remain solid driven by new products such as Lotemax, steroidal anti-inflammatory drops designed to treat ocular inflammation, and the company's Bausch & Lomb Computer Eye Drops product which was launched in late 1997. Operating margins are expected to remain at 1997 levels. The segment is subject to risks associated with future adverse changes in the laws and regulations affecting products, taxes, the environment and other governmentally regulated areas. In particular, growth is contingent upon obtaining necessary regulatory approvals. In addition, this business anticipates shifting its current product portfolio toward a more even balance between higher-margin proprietary pharmaceuticals and lower-margin generic pharmaceuticals. During 1998 the company will continue to manage the healthcare segment in a manner designed to maximize its return to investors. Revenues are forecasted to grow at a rate consistent with 1997 and operating margins are expected to increase at the same pace as sales. Growth is anticipated in all of the healthcare businesses. In fiscal 1998 the company acquired two new businesses, Chiron Vision Corporation and Storz Instrument Company. These businesses offer products in the cataract, refractive and retinal surgery markets, as well as the ophthalmic pharmaceuticals market. During 1998 these two acquisitions will be combined to form Bausch & Lomb Incorporated and Consolidated Subsidiaries [35] a new surgical business which enhances the company's existing portfolio of eye care products. Overall, the success of the acquisitions will depend in large part on the company's ability to integrate and capture synergies in the combined businesses. Expenses are expected to be incurred related to the integration process, especially in the first half of 1998, however the full year's earnings impact should be neutral. These expectations do not include any potential one-time charges related to the write-off of acquired in-process research and development projects. The company expects to record additional restructuring charges in early 1998 related to 1997 cost reduction programs. However, the results of those restructuring and cost reduction efforts, coupled with profit improvement in the sunglass business, should continue to result in consolidated earnings growth for the company during 1998. Although not anticipated, risks that the company does not achieve the stated cost reductions and restructuring goals could impact the company's ability to meet its short- and long-term earnings goals. 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. Year 2000 Software Compliance For the past several years the company has been working to identify and resolve all year 2000 data and processing issues within its current portfolio of software applications. Currently, management believes that the costs of addressing potential problems are not expected to have a material adverse impact on the company's financial position, results of operations or cash flows in future periods. However, if the company, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. The company plans to devote the necessary resources to resolve significant year 2000 issues in a timely manner. Information Concerning Forward-Looking Statements When used in this discussion, the words "anticipate," "should," "expect," "estimate," "project" and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve predictions of future company performance, and are thus dependent on a number of factors affecting the company's performance. Where possible, specific factors that may impact performance materially have been identified in connection with specific forward-looking statements. Additional risks and uncertainties include, without limitation, the impact of competition, seasonality and general economic conditions in the global sunglass, vision care and ophthalmic surgical and pharmaceutical markets, where the company's core businesses compete, changes in global economic and political conditions, customer concentration (the company's two largest customers accounted for over 10% of total sales in 1997), changing trends in consumer preferences and tastes, legal proceedings initiated by or against the company, changes in government regulation of the company's products and operations, changes in private and regulatory schemes providing for the reimbursement of patient medical expenses, difficulties or delays in the development, production, testing and marketing of products and 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 1997 Annual Report on Form 10-K. Bausch & Lomb Incorporated and Consolidated Subsidiaries [36] Quarterly Results The following table presents reported net sales, gross profit (net sales less cost of products sold), net earnings and net earnings per share for each quarter during the past two years: Net Earnings Per Share Net Gross Net ---------------------- Sales Profit Earnings Basic Diluted - ------------------------------------------------------------------------- 1997 First $ 451.2 $ 224.0 $ 3.3(1) $0.06 $0.06(1) Second 523.2 291.7 20.3(1) 0.37 0.36(1) Third 468.3 255.2 18.5(1) 0.33 0.33(1) Fourth 473.0 260.1 7.3(1,2) 0.13 0.13(1,2) --------------------------------------------------------------- Total $1,915.7 $1,031.0 $49.4 $0.89 $0.89 =============================================================== 1996 First $ 469.3 $ 261.4 $22.5 $0.40 $0.39 Second 545.5 311.8 30.3(3) 0.53 0.53(3) Third 477.2 257.4 14.4(4) 0.26 0.26(4) Fourth 434.8 223.9 15.9(5) 0.29 0.29(5) -------------------------------------------------------------- Total $1,926.8 $1,054.5 $83.1 $1.48 $1.47 ============================================================== (1) Includes the after-tax effect of restructuring charges of $7.7 ($0.14 per share), $18.3 ($0.33 per share), $11.0 ($0.20 per share) and $9.4 ($0.17 per share) for the first, second, third and fourth quarters of 1997, respectively. (2) Includes the after-tax effect of a litigation provision of $13.2 ($0.24 per share). (3) Includes the after-tax effect of restructuring charges of $10.9 ($0.19 per share). (4) Includes the after-tax effect of a litigation provision of $10.0 ($0.18 per share) and the after-tax loss on sale of the Oral Care Division of $6.3 ($0.11 per share). (5) Includes the after-tax gain on sale of the dental implant business of $8.5 ($0.15 per share). Quarterly Stock Prices The Company's Common stock is listed on the New York Stock Exchange and is traded under the symbol BOL. There were approximately 7,800 Common shareholders of record at December 27, 1997. The following table shows the price range of the Common stock for each quarter for the past two years: 1997 1996 Price Per Share Price Per Share ----------------------------------------------- High Low High Low ----------------------------------------------- First $40-1/4 $32-1/2 $41-3/8 $37 Second 47-7/8 36-3/8 44-1/2 36-1/8 Third 47-7/8 38-5/16 43-1/8 32-1/2 Fourth 43-5/8 37 38-1/4 32-1/2 =============================================== Bausch & Lomb Incorporated and Consolidated Subsidiaries [37] Statement Of Earnings For The Years Ended December 27, 1997, December 28, 1996 and December 30, 1995 Dollar Amounts In Millions -- Except Per Share Data 1997 1996 1995 - -------------------------------------------------------------------------------- Net Sales $1,915.7 $1,926.8 $1,932.9 Costs And Expenses Cost of products sold 884.7 872.3 860.0 Selling, administrative and general 743.8 773.1 770.0 Research and development 67.5 75.5 65.6 Restructuring charges 71.7 15.1 26.7 ------------------------------- 1,767.7 1,736.0 1,722.3 ------------------------------- Operating Earnings 148.0 190.8 210.6 ------------------------------- Other Expense (Income) Interest and investment income (40.4) (42.8) (39.0) Interest expense 56.0 51.7 45.8 (Gain) loss from foreign currency, net (6.6) (1.6) 6.2 Gain on divestitures -- (1.5) (35.9) Litigation provision 21.0 16.1 21.7 ------------------------------- 30.0 21.9 (1.2) ------------------------------- Earnings Before Income Taxes And Minority Interest 118.0 168.9 211.8 Provision for income taxes 45.6 63.7 78.1 ------------------------------- Earnings Before Minority Interest 72.4 105.2 133.7 Minority interest 23.0 22.1 21.7 ------------------------------- Net Earnings 49.4 83.1 112.0 Retained Earnings At Beginning Of Year 924.7 900.1 846.2 Cash Dividends Declared-Common Stock, $1.04 per share for 1997 ($1.04 for 1996 and $1.01 for 1995) (57.6) (58.5) (58.1) ------------------------------- Retained Earnings At End Of Year $ 916.5 $ 924.7 $ 900.1 =============================== Basic Earnings Per Share $ 0.89 $ 1.48 $ 1.94 Average Shares Outstanding-Basic (000s) 55,383 56,299 57,704 Diluted Earnings Per Share $ 0.89 $ 1.47 $ 1.93 Average Shares Outstanding-Diluted (000s) 55,654 56,510 57,974 =============================== See Notes To Financial Statements Bausch & Lomb Incorporated and Consolidated Subsidiaries [38] Balance Sheet December 27, 1997 and December 28, 1996 Dollar Amounts In Millions -- Except Per Share Data 1997 1996 - ------------------------------------------------------------------------------ Assets Current Assets Cash, cash equivalents and short-term investments $ 183.7 $ 167.8 Trade receivables, less allowances of $14.0 and $13.3, respectively 374.8 268.4 Inventories, net 324.3 339.8 Recoverable income taxes -- 6.0 Deferred taxes, net 66.0 48.6 Other current assets 141.4 117.0 -------------------------- 1,090.2 947.6 Property, Plant And Equipment, net 580.2 566.7 Goodwill And Other Intangibles, less accumulated amortization of $116.6 and $83.8, respectively 406.9 390.9 Other Investments 546.4 560.3 Other Assets 149.2 137.9 -------------------------- Total Assets $2,772.9 $2,603.4 ========================== Liabilities And Shareholders' Equity Current Liabilities Notes payable $ 339.4 $ 394.1 Current portion of long-term debt 4.4 88.0 Accounts payable 72.0 71.1 Accrued compensation 73.6 82.2 Accrued liabilities 365.9 293.7 Federal, state and foreign income taxes payable 32.0 -- -------------------------- 887.3 929.1 Long-Term Debt, less current portion 510.8 236.3 Other Long-Term Liabilities 119.4 124.0 Minority Interest 437.0 432.1 -------------------------- Total Liabilities 1,954.5 1,721.5 -------------------------- Shareholders' Equity 4% Cumulative Preferred stock, par value $100 per share -- -- Class A Preferred stock, par value $1 per share -- -- Common stock, par value $0.40 per share, 60,198,322 shares issued 24.1 24.1 Class B stock, par value $0.08 per share, 856,905 shares issued (1,150,409 shares in 1996) 0.1 0.1 Capital in excess of par value 76.8 96.1 Retained earnings 916.5 924.7 Common and Class B stock in treasury, at cost, 5,846,286 shares (5,944,982 shares in 1996) (223.1) (230.5) Other shareholders' equity 24.0 67.4 -------------------------- Total Shareholders' Equity 818.4 881.9 -------------------------- Total Liabilities And Shareholders' Equity $2,772.9 $2,603.4 ========================== See Notes To Financial Statements Bausch & Lomb Incorporated and Consolidated Subsidiaries [39] Statement Of Cash Flows For The Years Ended December 27, 1997, December 28, 1996 and December 30, 1995 Dollar Amounts In Millions 1997 1996 1995 - ------------------------------------------------------------------------------- Cash Flows From Operating Activities Net earnings $ 49.4 $ 83.1 $112.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 90.8 92.6 89.2 Amortization 21.2 20.7 16.1 Change in deferred income taxes 18.7 23.2 (44.8) Gain on divestitures, net of taxes -- (2.2) (20.8) Stock compensation expense 3.3 1.3 5.6 Provision for litigation expense, net of taxes 13.2 10.0 14.2 Restructuring charges, net of taxes 46.4 10.9 17.4 Loss on retirement of fixed assets 8.3 2.9 3.2 Changes in assets and liabilities: Trade receivables (32.9) (22.4) 8.6 Inventories (1.0) (45.1) (18.2) Other current assets (31.3) (23.9) 16.6 Accounts payable and accrued liabilities (11.7) (13.6) 50.0 Income taxes 51.0 (40.8) 40.6 Other long-term liabilities (9.9) (7.4) 0.3 ----------------------------- Net cash provided by operating activities 215.5 89.3 290.0 ----------------------------- Cash Flows From Investing Activities Capital expenditures (126.1) (130.3) (95.5) Proceeds from sale of equipment -- 9.6 -- Net cash paid for acquisition of businesses (48.6) (85.7) (1.9) Net cash received from divestitures 9.3 77.7 60.5 Other investments -- -- (136.0) Other (9.2) (13.8) 8.0 ----------------------------- Net cash used in investing activities (174.6) (142.5) (164.9) ----------------------------- Cash Flows From Financing Activities Repurchases of Common and Class B shares (21.8) (67.8) (94.1) Exercise of stock options 14.8 5.2 5.4 Net (repayments) proceeds from notes payable (72.7) 111.4 32.3 Proceeds from issuance of long-term debt 213.5 135.2 0.6 Repayment of long-term debt (89.3) (96.4) (47.8) Payment of dividends (57.1) (58.9) (57.8) ----------------------------- Net cash (used in) provided by financing activities (12.6) 28.7 (161.4) ----------------------------- Effect of exchange rate changes on cash, cash equivalents and short-term investments (12.4) (2.3) (1.6) ----------------------------- Net change in cash, cash equivalents and short-term investments 15.9 (26.8) (37.9) ----------------------------- Cash, Cash Equivalents And Short-Term Investments, Beginning Of Year 167.8 194.6 232.5 ----------------------------- Cash, Cash Equivalents And Short-Term Investments, End Of Year $183.7 $167.8 $194.6 ============================== See Notes To Financial Statements Bausch & Lomb Incorporated and Consolidated Subsidiaries [40] Notes To Financial Statements Dollar Amounts In Millions - Except Per Share Data 1. Accounting Policies Principles Of Consolidation The financial statements include all majority-owned U.S. and non-U.S. subsidiaries. Intercompany accounts, transactions and profits are eliminated. The fiscal year is the 52- or 53-week period ending the last Saturday in December. Certain amounts in the prior years' financial statements have been reclassified to conform with the current year's presentation. Use Of Estimates The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management with consideration given to materiality. For example, estimates are used in determining valuation allowances for uncollectible trade receivables, obsolete inventory and deferred income taxes. Actual results could differ from those estimates. Cash And Cash Equivalents Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost or market, generally using the first-in, first-out (FIFO) method. However, cost is determined by using the last-in, first-out (LIFO) method for certain U.S. inventories. Property, Plant And Equipment Property, plant and equipment, including improvements that significantly add to productive capacity or extend useful life, are recorded at cost, while maintenance and repairs are expensed as incurred. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 30 to 40 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the lease periods. Goodwill Goodwill is amortized on a straight-line basis over periods ranging from 8 to 40 years. The company evaluates goodwill for impairment at least annually. In completing this evaluation, the company compares its best estimate of future cash flows, excluding interest costs, with the carrying value of goodwill. Revenue Recognition Revenues are generally recognized when products are shipped. The company has established programs which, under specified conditions, enable customers to return product. The company establishes liabilities for estimated returns and allowances at the time of shipment. In addition, accruals for customer discounts and rebates are recorded when revenues are recognized. Stock-Based Compensation The company measures compensation cost for its stock-based compensation plans under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," disclosure of compensation costs on the basis of fair value is presented in Note 16--Stock Compensation Plans. 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 27, 1997 and December 28, 1996, $7.2 and $5.8 of deferred advertising costs representing production and design costs for advertising to be run in the subsequent fiscal year, were reported as other current assets. Advertising expenses of $235.0, $241.8 and $232.5 were included in selling, administrative and general expenses for 1997, 1996 and 1995, respectively. Start-Up Costs One-time, incremental out-of-pocket expenditures directly related to and incurred during the start-up phase of major internal projects are deferred and amortized over future periods. Upon conclusion of the start-up period, these costs are amortized on a straight-line basis over periods of no more than three years. Recoverability of these costs is assessed on an ongoing basis and writedowns to net realizable value are recorded as necessary. At December 27, 1997 and December 28, 1996, $3.6 and $4.3 of start-up costs were reported as other assets, respectively. Bausch & Lomb Incorporated and Consolidated Subsidiaries [41] Investments In Debt And Equity Securities Certain of the company's other investments are classified as available-for-sale under the terms of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and accordingly, any unrealized holding gains and losses, net of taxes, are excluded from income and recognized as a component of other shareholders' equity until realized. Fair value of the investments is determined based on market prices or using discounted cash flows and investment risk. Foreign Currency Translation Assets and liabilities of certain non-U.S. subsidiaries are translated at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded in other shareholders' equity. Financial results of non-U.S. subsidiaries in countries with highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. Derivative Financial Instruments The company does not engage in foreign currency or interest rate speculation. Derivative financial instruments are utilized to hedge foreign exchange and interest rate risks and are not held or issued for trading purposes. The company uses a combination of foreign currency forward, option and swap contracts to hedge foreign exchange exposures. The portfolio of contracts is adjusted at least monthly to reflect changes in exposure positions as changes 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 other shareholders' equity. The receivable or payable with the counterparty to the derivative contract is reported as either other current assets or accrued liabilities, respectively. Deferred gains and losses, which are recorded as other current assets or accrued liabilities, totaled less than $0.5 at December 27, 1997 and December 28, 1996 and are expected to be recognized within one year. The company enters into interest rate swap and cap agreements to effectively limit exposure to interest rate movements within the parameters of its interest rate hedging policy. This policy requires that interest rate exposure from floating-rate assets be offset by a substantially similar amount of floating-rate liabilities. Interest rate derivatives are used to readjust this natural hedge position whenever it becomes unbalanced beyond policy limits. Net payments or receipts are accrued into other current assets and accrued liabilities and recorded as adjustments to interest expense or as interest income. Interest rate instruments are entered into for periods no greater than the life of the underlying transactions being hedged or, in the case of floating-rate to fixed-rate swaps, for periods no longer than the underlying floating-rate exposure is expected to remain outstanding. Interest rate derivatives are normally held to maturity, but may be terminated early, particularly if the underlying exposure is similarly extinguished. Gains and losses on prematurely terminated interest rate derivatives are recognized over the remaining life, if any, of the underlying exposure as an adjustment to interest income or interest expense. The company amortizes premium income or expense incurred from entering into foreign exchange forward and option contracts and interest rate derivatives over the life of each agreement as non-operating income and expense. Bausch & Lomb Incorporated and Consolidated Subsidiaries [42] 2. Subsequent Events On December 29, 1997, the company acquired Chiron Vision Corporation (Chiron Vision), the ophthalmic products unit of Chiron Corporation, for a purchase price of $300.0 in cash. Chiron Vision researches, develops and manufactures innovative products that improve results in cataract and refractive surgery and the treatment of progressive eye diseases. Chiron Vision had unaudited net sales of $212.7 for the twelve months ended December 1997. Further, on December 31, 1997, the company acquired Storz Instrument Company (Storz) from American Home Products Corporation, for a purchase price of $380.0 in cash. Storz is a leading manufacturer of high quality ophthalmic surgical instruments, surgical and diagnostic equipment, intraocular lens implants and ophthalmic pharmaceuticals. Storz had unaudited net sales of $205.7 for the twelve months ended December 1997. The acquisitions will be accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price will be allocated to net tangible and intangible assets acquired based on their estimated fair values. A portion will also be allocated to in-process research and development projects that had not reached technological feasibility and had no probable alternative future uses which will be expensed in the first quarter of 1998. The balance of the purchase price will be recorded as goodwill. The company is currently in the process of preparing the purchase price allocation and determining the useful lives of the assets acquired. The acquisitions were financed initially through $680.0 of short-term borrowings, the majority of which the company plans to convert to long-term during 1998. The company expects the full year earnings impact of the acquisitions in 1998 to be neutral. 3. Earnings Per Share In 1997, the company adopted SFAS No. 128, "Earnings Per Share", which requires the disclosure of basic and diluted earnings per share. Basic earnings per share is computed based on the weighted average number of Common and Class B shares outstanding during the period. Diluted earnings per share reflects the assumed conversion of dilutive stock options. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options are considered to have been used to purchase Common shares at average market prices for the period, and the resulting net additional Common shares are included in the calculation of average Common shares outstanding. All previously reported earnings per share amounts were restated upon adoption of SFAS No. 128. The table below summarizes the amounts used to calculate basic and dilutive earnings per share:
1997 1996 1995 ---------------------------------------------------------------------------------------------------- Average Average Average Outstanding Outstanding Outstanding Net Shares Per Net Shares Per Net Shares Per Earnings (000s) Share Earnings (000s) Share Earnings 000s) Share - ------------------------------------------------------------------------------------------------------------------------ Basic Earnings Per Share $49.4 55,383 $0.89 $83.1 56,299 $1.48 $112.0 57,704 $1.94 Effect of Dilutive Stock Options -- 271 -- 211 -- 270 --------------------- ------------------ ----------------- Diluted Earnings Per Share $49.4 55,654 $0.89 $83.1 56,510 $1.47 $112.0 57,974 $1.93 =========================================================================== =========================
Bausch & Lomb Incorporated and Consolidated Subsidiaries [43] Certain antidilutive outstanding stock options were excluded from the calculation of average shares outstanding since their exercise prices exceeded the average market price of the Common shares during the period. The antidilutive stock options so excluded at the end of each of the last three years and their associated exercise prices are summarized below. The options expire at various times between 2001 and 2007. Number Of Options (000s) Exercise Price - -------------------------------------------------------------------- 1997 3,431 $41.50 - $55.44 1996 2,981 36.38 - 55.44 1995 3,105 41.50 - 55.44 ============================================= 4. Restructuring Charges In April 1997, the company's board of directors approved plans to restructure portions of each of the company's four business segments, as well as certain corporate administration functions. As a result, cumulative pre-tax restructuring charges of $74.2 were recorded throughout 1997, the major components of which are summarized in the table below:
Pharma- Corporate Vision Care Eyewear ceuticals Healthcare Administration Total - ------------------------------------------------------------------------------------------- Employee separations $17.2 $23.8 $3.9 $3.2 $3.7 $51.8 Asset writedowns 3.3 6.6 -- 1.8 0.3 12.0 Other 0.4 4.4 1.2 0.9 3.5 10.4 ------------------------------------------------------------------------ $20.9 $34.8 $5.1 $5.9 $7.5 $74.2 ------------------------------------------------------------------------
This restructuring effort is expected to reduce significantly 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. Asset writedowns primarily related to the closing of facilities and losses resulting from equipment dispositions. Other charges included losses under lease and other commitments. In June 1996 and December 1995, the company's board of directors approved plans to restructure portions of the vision care, eyewear and healthcare operations and certain corporate administration functions. Accordingly, pre-tax restructuring charges of $41.8 were recorded, the major components of which are set forth in the table below: Vision Corporate Care Eyewear Healthcare Administration Total - ------------------------------------------------------------------------------- Employee separations $ 4.5 $14.3 $2.1 $3.5 $24.4 Asset writedowns 4.1 4.4 2.2 1.0 11.7 Other 3.1 2.1 0.5 -- 5.7 ---------------------------------------------------------- $11.7 $20.8 $4.8 $4.5 $41.8 ========================================================== Bausch & Lomb Incorporated and Consolidated Subsidiaries [44] The charges provided for costs associated with streamlining operations, including the closure of certain manufacturing facilities, the reorganization of European and Asian logistics and warehousing and consolidation of administrative functions. During 1997, the actions relating to these programs were substantially completed and remaining reserves of $2.5 were reversed, resulting in net reported restructuring expense of $71.7 in 1997. The following table sets forth the activity in the restructuring reserves through December 27, 1997:
Vision Pharma- Corporate Care Eyewear ceuticals Healthcare Administration Total - -------------------------------------------------------------------------------------------------- Restructuring provisions: 1995 and 1996, net of reversals $10.1 $18.8 $ -- $4.8 $5.6 $39.3 1997 20.9 34.8 5.1 5.9 7.5 74.2 Less charges against 1995 and 1996 reserve: Non-cash items 4.1 4.4 -- 2.2 1.0 11.7 Cash payments 6.0 14.4 -- 2.6 4.6 27.6 Less charges against 1997 reserve: Non-cash items 3.3 6.6 -- 1.8 0.3 12.0 Cash payments 8.5 8.9 1.9 1.2 5.9 26.4 ---------------------------------------------------------------------- Balance at December 27, 1997 $ 9.1 $19.3 $3.2 $2.9 $1.3 $35.8 ======================================================================
All actions contemplated at the time of establishing the 1997 reserves have been initiated and are expected to be fully completed during 1998. Reserves remaining at December 27, 1997 primarily represent liabilities for continuing severance payments and are considered to be adequate. Bausch & Lomb Incorporated and Consolidated Subsidiaries [45] 5. Geographic Region And Business Segment Information The company's operating results are reported in four segments: vision care, eyewear, pharmaceuticals and healthcare. The vision care segment includes contact lenses and lens care products. The eyewear segment includes sunglasses, vision accessories, the optical thin film coating services and products business which was divested in December 1997 and the sports optics business which was divested in 1995. The pharmaceuticals segment includes prescription pharmaceuticals and over-the-counter medications. The healthcare segment includes biomedical products and services, skin care products, hearing aids and the oral care and dental implant businesses which were divested in 1996. Inter-area sales to affiliates represent products which are transferred between geographic region on a basis intended to reflect the market value of the products as nearly as possible. Identifiable assets are those assets used exclusively in the operations of each business segment or geographic region, or which are allocated when used jointly. Corporate assets are principally cash and cash equivalents, short-term investments, other investments and certain property, plant and equipment. The following tables present sales and other financial information by geographic region and business segment for the years 1997, 1996 and 1995: Geographic Region
Europe, Middle East Asia- Canada & U.S. & Africa Pacific Latin America Consolidated - --------------------------------------------------------------------------------------------------- 1997 Sales to unaffiliated customers $ 966.7 $ 481.9 $356.6 $110.5 $1,915.7 Inter-area sales to affiliates 152.6 100.3 46.4 3.3 302.6 Operating earnings 69.6 58.8 20.4 (0.8) 148.0(1) Identifiable assets 1,269.8 1,136.9 306.2 60.0 2,772.9 ================================================================= 1996 Sales to unaffiliated customers $ 963.3 $ 500.8 $346.6 $116.1 $1,926.8 Inter-area sales to affiliates 162.4 75.5 19.7 3.1 260.7 Operating earnings 76.4 74.7 36.1 3.6 190.8(2) Identifiable assets 1,204.2 1,090.5 238.3 70.4 2,603.4 ================================================================= 1995 Sales to unaffiliated customers $ 997.6 $ 471.0 $345.3 $119.0 $1,932.9 Inter-area sales to affiliates 151.6 79.7 13.0 4.2 248.5 Operating earnings 75.8 93.2 43.6 (2.0) 210.6(3) Identifiable assets 1,152.6 1,078.4 244.1 75.0 2,550.1 =================================================================
(1) Includes restructuring charges of $71.7 as follows: U.S., $51.8; Europe, Middle East & Africa, $13.3; Asia-Pacific, $2.5 and Canada & Latin America, $4.1. (2) Includes restructuring charges of $15.1 as follows: U.S., $6.3; Europe, Middle East & Africa, $6.5; Asia-Pacific, $1.9 and Canada & Latin America, $0.4. (3) Includes restructuring charges of $26.7 as follows: U.S., $22.9; Europe, Middle East & Africa, $3.3 and Canada & Latin America, $0.5. Bausch & Lomb Incorporated and Consolidated Subsidiaries [46] Business Segment
Operating Identifiable Capital Net Sales Earnings Depreciation Assets Expenditures - ----------------------------------------------------------------------------------------------- 1997 Vision care $ 908.9 $189.9 $43.4 $ 652.5 $ 73.4 Eyewear 492.1 (59.2) 24.4 514.2 20.7 Pharmaceuticals 190.6 31.5 7.8 193.8 10.0 Healthcare 324.1 39.9 13.0 418.5 20.4 Corporate administration -- (54.1) 2.2 993.9 1.6 --------------------------------------------------------------------- $1,915.7 $148.0(1) $90.8 $2,772.9 $126.1 ===================================================================== 1996 Vision care $ 869.1 $182.1 $38.2 $ 646.1 $ 61.9 Eyewear 525.1 (5.6) 23.4 461.0 28.6 Pharmaceuticals 189.0 28.6 8.4 200.5 14.2 Healthcare 343.6 34.8 16.9 417.6 21.5 Corporate administration -- (49.1) 5.7 878.2 4.1 --------------------------------------------------------------------- $1,926.8 $190.8(2) $92.6 $2,603.4 $130.3 ===================================================================== 1995 Vision care $ 813.7 $158.5 $34.2 $ 593.2 $ 38.7 Eyewear 581.4 43.7 25.7 410.1 19.9 Pharmaceuticals 181.5 38.5 8.5 196.1 12.7 Healthcare 356.3 30.8 17.9 430.1 14.4 Corporate administration -- (60.9) 2.9 920.6 9.8 --------------------------------------------------------------------- $1,932.9 $210.6(3) $89.2 $2,550.1 $ 95.5 =====================================================================
(1) Includes restructuring charges of $71.7 as follows: vision care, $19.3; eyewear, $32.8; pharmaceuticals, $5.1; healthcare, $5.9 and corporate administration, $8.6. (2) Includes restructuring charges of $15.1 as follows: vision care, $8.6; eyewear, $5.0 and corporate administration, $1.5. (3) Includes restructuring charges of $26.7 as follows: vision care, $3.1; eyewear, $15.8; healthcare, $4.8 and corporate administration, $3.0. Bausch & Lomb Incorporated and Consolidated Subsidiaries [47] 6. Supplemental Balance Sheet And Cash Flow Information Inventories December 27, December 28, 1997 1996 - -------------------------------------------------------------------------------- Raw materials and supplies $ 96.3 $ 89.4 Work in process 23.4 20.1 Finished products 218.1 238.3 -------------------------------- 337.8 347.8 Less allowance for valuation of certain U.S. inventories at LIFO 13.5 8.0 -------------------------------- $324.3 $339.8 ================================ Inventories valued using LIFO $ 84.1 $ 74.9 ================================ Property, Plant And Equipment December 27, December 28, 1997 1996 - -------------------------------------------------------------------------------- Land $ 21.0 $ 22.1 Buildings 392.2 403.7 Machinery and equipment 727.0 689.7 Leasehold improvements 34.9 33.1 -------------------------------- 1,175.1 1,148.6 Less accumulated depreciation 594.9 581.9 -------------------------------- $ 580.2 $ 566.7 ================================ Cash Flow Information Payments of interest in 1997, 1996 and 1995 were $56.2, $48.6 and $44.6, respectively. Net (refunds) payments of income taxes during those years were $(6.4), $85.7 and $94.5, respectively. 7. Other Investments The company has invested 219 million Netherlands guilders (NLG), approximating $136.0 at the time of the investment, in securities issued by a subsidiary of a triple-A rated financial institution. The issuer's investments are restricted to high quality short-term investments and government obligations and the issuer reinvests all of its income. At December 27, 1997, the average U.S. dollar rate of return was 5.50%, including the effects of a foreign currency swap transaction which effectively hedges the currency risk and converts the NLG income to a U.S. dollar rate of return. The company has the right to call for redemption of the shares held each quarter at net asset value. In the event this right is not exercised, the triple-A rated financial institution has the right to put the shares it owns to the company in March and June, 2003. Bausch & Lomb Incorporated and Consolidated Subsidiaries [48] The company has also invested $425.0 in securities issued by a subsidiary of a double-A rated financial institution. The securities rank senior to all other classes of the issuer's equity and rank junior to the secured and unsecured liabilities of the issuer, including subordinated debt obligations, and are neither payable upon demand nor have a fixed maturity. The securities pay quarterly cumulative dividends at a variable LIBOR-based rate. At December 27, 1997, this rate was 5.17%. The issuer holds a call option on the securities, exercisable upon 180 days notice. The securities will become freely transferable in 2004. At that time, the dividend rate will be reset, if necessary, to ensure that the market value of the securities is equal to par value. Management believes that each of the above investments is fully recoverable at par value based on the high quality and stability of the institutions. However, the investments are subject to equity risks. 8. Provision For Income Taxes An analysis of the components of earnings before income taxes and minority interest and the related provision for income taxes is presented below: 1997 1996 1995 - ------------------------------------------------------------------- Earnings before income taxes and minority interest U.S. $ 1.5 $ 42.0 $ 64.4 Non-U.S. 116.5 126.9 147.4 --------------------------------- $118.0 $168.9 $211.8 ================================= Provision for income taxes Federal Current $ 24.0 $ (3.2) $ 57.1 Deferred (12.3) 13.9 (27.5) State Current 4.1 4.4 12.3 Deferred (0.5) 2.0 (6.2) Foreign Current 36.4 48.4 47.1 Deferred (6.1) (1.8) (4.7) --------------------------------- $ 45.6 $ 63.7 $ 78.1 ================================= Deferred taxes, detailed below, recognize the impact of temporary differences between the amounts of assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax laws. Realization of the tax loss and credit carryforwards, which expire between 1998 and 2012, is contingent on future taxable earnings. Valuation allowances have been recorded for these and other asset items which may not be realized. Bausch & Lomb Incorporated and Consolidated Subsidiaries [49]
December 27, 1997 December 28, 1996 ------------------------------------------------------------ Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------------------------------------- Current: Inventories $ 26.4 $ -- $ 28.0 $ -- Restructuring accruals 23.3 -- 6.6 -- Employee benefits and compensation 20.1 -- 17.6 -- Sales and allowance accruals 14.7 -- 19.6 -- Legal/litigation accruals 10.5 -- 8.6 -- Other accruals 8.2 -- 9.4 -- Unrealized foreign exchange transactions 1.5 14.1 1.8 8.6 State and local income tax -- 10.5 0.4 7.4 Tax loss and credit carryforwards -- -- 1.2 -- ------------------------------------------------------------ 104.7 24.6 93.2 16.0 ------------------------------------------------------------ Non-current: Tax loss and credit carryforwards 49.7 -- 29.8 -- Employee benefits 32.4 0.2 40.0 0.6 Unrealized foreign exchange transactions 3.0 13.9 -- 8.4 Depreciation and amortization 0.1 53.6 0.6 56.7 Other accruals -- 4.2 -- 4.2 State and local income tax -- -- -- 1.8 Valuation allowance (27.4) -- (27.3) -- ------------------------------------------------------------ 57.8 71.9 43.1 71.7 ------------------------------------------------------------ $162.5 $96.5 $136.3 $87.7 ============================================================
Reconciliations of the statutory U.S. federal income tax rate to effective tax rates were as follows: 1997 1996 1995 - -------------------------------------------------------------------------- Statutory U.S. tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 2.0 2.5 1.9 Difference between non-U.S. and U.S. tax rates 1.9 2.9 0.9 Goodwill amortization 1.1 1.0 1.0 Foreign Sales Corporation tax benefit (2.1) (1.8) (1.2) Other 0.8 (1.9) (0.7) -------------------------- Effective tax rate 38.7% 37.7% 36.9% ========================== At December 27, 1997, earnings considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $754.1. 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. Bausch & Lomb Incorporated and Consolidated Subsidiaries [50] 9. Debt Short-term debt at December 27, 1997 and December 28, 1996 consisted of $297.0 and $366.3 in U.S. commercial paper and promissory notes issued to banks and $42.4 and $27.8 in non-U.S. borrowings, respectively. To support its liquidity requirements, the company maintains U.S. revolving credit agreements with 364-day and 5-year credit terms totaling $900.0 and $300.0, respectively. No debt was outstanding under these agreements at December 27, 1997. Commitment fees on these revolving credit agreements fluctuate according to the long-term debt ratings of the company, and were 0.100% and 0.125% on the 364-day and 5-year agreements, respectively, as of December 27, 1997. The interest rate applicable to borrowings under the agreements is based on the LIBOR rate, or, at the company's option, the higher of several other common indices. The company also maintains unused U.S. bank lines of credit amounting to approximately $32.0. Compensating balance arrangements for these lines are not material. The company has entered into two seven-year interest rate swap agreements, each in notional amounts of $100.0, which convert $200.0 of U.S. commercial paper into fixed-rate obligations with an effective interest rate of 6.48%. The swaps will terminate on January 1, 2002. Average short-term interest rates, which include the effect of the interest rate swap agreements, were 6.0% and 5.8% at year end 1997 and 1996, respectively. The maximum amount of short-term debt at the end of any month was $529.4 in 1997 and $472.0 in 1996. Average month-end borrowings were $476.3 in 1997 and $405.8 in 1996. The components of long-term debt were: December 27, December 28, 1997 1996 - -------------------------------------------------------------------------------- Fixed-rate notes payable: Notes due in 1997 $ -- $ 85.0 Notes due in 1999 23.3 26.3 Notes due in 2001 or 2026 100.0 100.0 Notes due in 2003 85.0 85.0 Notes due in 2004 200.0 -- Other 16.8 12.2 Securitized trade receivables expiring in 2002 75.0 -- Industrial Development Bonds due in 2015 8.5 8.5 Other 6.6 7.3 ----------------------------- 515.2 324.3 Less current portion 4.4 88.0 ----------------------------- $510.8 $236.3 ============================= The notes maturing in 1999 relate to borrowings of 3 billion Japanese yen at interest rates ranging from 2.21% to 2.28%. The $100.0 notes were issued under the company's $300.0 medium-term note program at a fixed rate of 6.56%. The holders, at their option, may put these notes back to the company in 2001; otherwise the notes mature in 2026. An interest rate swap agreement on the $85.0 note due in 2003 effectively converts the note to a floating-rate obligation with an interest rate based on the one-month U.S. composite commercial paper rate. At December 27, 1997 this rate was 5.9%. Under the $300.0 medium-term note program the com- Bausch & Lomb Incorporated and Consolidated Subsidiaries [51] pany also issued $200.0 of underwritten notes due in 2004 at a fixed rate of 6.75%. 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 on early extinguishment of the notes. The interest rate on the Industrial Development Bonds, which was 4.5% at December 27, 1997, varies based on the prime rate and prevailing market conditions. In 1997, the company entered into an agreement, expiring in 2002, to sell undivided fractional interests in specific pools of U.S. trade receivables of up to $75.0. Proceeds from the sales contemplated by the agreement, which totaled $75.0 at December 27, 1997, were reported as long-term borrowings in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." The interest rate applicable to the proceeds from the agreement at December 27, 1997 was 5.82% and will vary based on the company's credit rating. Separate U.S. and non-U.S. agreements for the sale of receivables totaling $65.0 and 3 billion Japanese yen, respectively, were terminated during 1997. Prior to their termination, proceeds from these agreements were reported as reductions to trade receivables and totaled $86.8 at December 28, 1996. Fees and discounting expenses related to the terminated U.S. agreement were recorded as interest expense and totaled approximately $0.9 in 1997, $3.8 in 1996 and $4.5 in 1995. Interest rate swap agreements on long-term debt issues resulted in a reduction in the long-term effective interest rate from 5.9% to 5.7% in 1997 and from 6.0% to 5.5% in 1996. Long-term borrowing maturities during the next five years are $4.4 in 1998; $28.9 in 1999; $2.2 in 2000; $108.3 in 2001 and $76.6 in 2002. 10. Operating Leases The company leases land, buildings, machinery and equipment under noncancelable operating leases. Total annual rental expense for 1997, 1996 and 1995 amounted to $35.2, $26.8 and $28.0, respectively. Minimum future rental commitments having noncancelable lease terms in excess of one year aggregated $130.8 as of December 1997 and are payable as follows: 1998, $20.8; 1999, $14.7; 2000, $10.9; 2001, $9.2; 2002, $6.1 and beyond, $69.1. 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 1997, net rental payments on the lease, included above, approximated $4.3. 11. Employee Benefits The company sponsors several retirement plans which, in the aggregate, cover substantially all U.S. employees and employees in certain other countries. In general, retirement benefits are based on years of service and the employee's compensation near retirement. Certain non-U.S. pension arrangements also provide termination indemnity payments. Contributions to the company's major U.S. plan meet ERISA minimum funding requirements. The plan's investments consist primarily of equity securities, corporate bonds, U.S. government issues and cash and cash equivalents. The company also sponsors defined contribution plans and participates in government-sponsored programs in certain non-U.S. locations. In addition to retirement plans, the company sponsors a participatory defined benefit postretirement plan providing medical and life insurance benefits to a majority of its U.S. employees. The plan provides benefits to retirees who have attained age 55 with ten years of service, spouses of such employees and certain employees on disability. The company has established a Voluntary Employee Benefit Association trust to provide for payment of these benefits. Annual contributions of $5.0 were made to the trust in each of the years 1997, 1996 and 1995. The trust's investments consist primarily of participating insurance contracts. The company intends to continue a program of prefunding for these benefits on an annual basis, but the amount of any future con- Bausch & Lomb Incorporated and Consolidated Subsidiaries [52] tributions is discretionary. The company also provides postretirement benefits to employees at a number of its non-U.S. locations in accordance with local statutory requirements. Such benefits are generally provided through government-sponsored plans. The company sponsors supplemental defined benefit retirement plans for certain key employees. These plans are unfunded. The pension liability associated with these plans has generally been determined using the same actuarial methods and assumptions as those used for the company's qualified plans. The annual cost of these plans has been included in the net periodic pension cost shown below and totaled $1.4 in 1997, $1.2 in 1996 and $0.9 in 1995. The projected benefit obligation relating to these unfunded plans at year end was $9.1 in 1997 and $7.7 in 1996. The components of net periodic pension cost and net periodic postretirement benefit (income) cost are presented below:
1997 1996 1995 ------------------------------------------------------------------------------------- U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Plans Plans Plans Plans Plans Plans - ------------------------------------------------------------------------------------------------------------------------ Retirement Plans Service cost - benefits earned during the period $ 6.3 $ 2.0 $ 6.5 $ 2.1 $ 5.4 $ 2.1 Interest cost on projected benefit obligation 12.7 2.0 11.8 1.9 10.9 1.8 Actual return on plan assets (29.0) (2.1) (20.6) (2.7) (26.3) (1.9) Charges due to curtailment -- -- 1.0 -- -- -- Net amortization and deferral 16.0 0.6 10.0 1.4 17.7 1.0 ------------------------------------------------------------------------------------- Net periodic pension cost $ 6.0 $ 2.5 $ 8.7 $ 2.7 $ 7.7 $ 3.0 =========================================================================== ========== Other Postretirement Benefits Service cost - benefits earned during the period $ 1.2 $ 1.9 $ 1.9 Interest cost on accumulated benefit obligation 4.9 6.0 6.0 Actual return on plan assets (5.6) (1.9) (2.9) Credits due to curtailment (1.0) (0.9) -- Net amortization and deferral 0.2 (2.0) (0.3) ------------------------------------------------------------------------------------- Net periodic postretirement benefit (income) cost $ (0.3) $ 3.1 $ 4.7 =========================================================================== ==========
Plan assets and the projected benefit obligations have been measured as of December for each period. Net periodic pension and postretirement benefit costs have been determined using assumptions as of the beginning of each year. The overall decrease in net periodic pension costs was attributable to higher asset returns in 1997 partially offset by increased interest costs on increasing earned benefits. The curtailment charge in 1996 was a result of several plant closings that occurred that year as a result of the company's restructuring efforts. The decrease in postretirement benefit cost was attributable to changes in assumptions for the medical care cost trend rate, population experience, a favorable return on plan assets and favorable medical claims experience. Bausch & Lomb Incorporated and Consolidated Subsidiaries [53] Key economic assumptions used in developing the projected benefit obligations for the company's major U.S. and non-U.S. retirement plans and U.S. postretirement plans at year end were as follows:
1997 1996 1995 ------------------------------------------------------------------------------------ U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Plans Plans Plans Plans Plans Plans - --------------------------------------------------------------------------------------------------------- Discount rate 7.5% 4.0-8.0% 7.75% 5.5-8.0% 7.75% 5.5-8.0% Rate of increase in compensation levels 4.75% 3.7-6.5% 5.0% 3.7-6.5% 5.0% 4.2-6.5% Expected long-term rate of return on plan assets 9.0-10.0% 2.5-9.0% 9.0-10.0% 2.5-9.0% 9.0-10.0% 5.5-9.0% Medical care cost trend rate 9.0% 10.0% 11.0% =========================================================================== =========
The company elected to revise its assumptions for 1997 for its U.S. plans in recognition of lower long-term interest rates and a trend in recent years favoring lower or stable inflation. The medical care cost trend rate is assumed to decrease one percent per year to 6.0% in the year 2000 for future valuations, and has a significant effect on the expense reported. For example, a one percentage point increase in the medical care cost trend rate would have increased the aggregate of the service and the interest cost components of net periodic postretirement benefit cost by approximately $0.7 or 12% in 1997. The following tables set forth the funded status and amounts recognized in the company's consolidated balance sheet:
December 27, 1997 December 28, 1996 - --------------------------------------------------------------------------------------------------- Over Under Over Under Funded Funded Funded Funded - --------------------------------------------------------------------------------------------------- Retirement Plans Actuarial present value of benefit obligations: Vested benefits $164.7 $16.6 $22.2 $144.8 Non-vested benefits 6.0 0.2 0.6 3.5 ----------------------------------------------- Accumulated benefit obligation 170.7 16.8 22.8 148.3 Effect of projected future salary increases 24.2 2.3 13.2 12.4 ----------------------------------------------- Projected benefit obligation 194.9 19.1 36.0 160.7 Plan assets at fair value 200.2 1.4 43.1 129.5 ----------------------------------------------- Projected benefit obligation (less than) in excess of plan assets (5.3) 17.7 (7.1) 31.2 Unrecognized net gain (loss) from past experience different from that assumed 12.3 (2.1) 10.4 (1.4) Unrecognized prior service costs (12.7) (1.4) (0.2) (15.0) Unrecognized net transition obligation (3.8) (0.3) (1.7) (3.4) Additional liability -- 2.0 -- 7.4 ----------------------------------------------- (Prepaid) accrued pension liability $ (9.5) $15.9 $ 1.4 $ 18.8 ===============================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries [54] December 27, December 28, 1997 1996 - -------------------------------------------------------------------------------- Other Postretirement Benefits Actuarial present value of postretirement benefit obligations: Retirees $56.2 $54.2 Active, eligible participants 6.3 9.0 Other active participants 13.0 18.2 -------------------------- Accumulated benefit obligation 75.5 81.4 Plan assets at fair value 33.9 23.3 -------------------------- Accumulated benefit obligation in excess of plan assets 41.6 58.1 Unrecognized prior service cost 1.5 1.8 Unrecognized net gain 38.8 33.1 -------------------------- Accrued postretirement benefit liability $81.9 $93.0 ========================== The unrecognized projected pension benefit obligation in excess of plan assets for retirement plans is being amortized against net periodic pension cost over the remaining service lives of the plan participants. The company records an additional liability to give recognition to the underfunded plan positions. Increasing the assumed medical care cost trend rates by one percentage point would have increased the accrued postretirement benefit liability as of December 27, 1997 by approximately $7.3 or 10%. This reflects the significant effect this assumption has on the calculation of the obligation. 12. Minority Interest Four wholly-owned subsidiaries of the company have contributed operating and financial assets to a limited partnership for an aggregate 72% in general and limited partnership interests. The partnership is a separate legal entity from the company whose purpose is to own and manage a portfolio of assets. Those assets include portions of the company's biomedical operations, those used for the manufacture and sale of rigid gas permeable contact lenses and lens care products, cash and cash equivalents, a long-term note guaranteed by the company and certain floating-rate demand notes due from certain of the company's subsidiaries. For financial reporting purposes, the assets, liabilities and earnings of the partnership entities have continued to be included in the company's consolidated financial statements. The outside investor's limited partnership interest in the partnership has been recorded as minority interest totaling $403.0 at both December 27, 1997 and December 28, 1996. Bausch & Lomb Incorporated and Consolidated Subsidiaries [55] 13. Shareholders' Equity At December 27, 1997, 10,000 shares of 4% Cumulative Preferred stock, 25 million shares of Class A Preferred stock, 15 million shares of Class B stock and 200 million shares of Common stock were authorized. The company issues treasury shares to fulfill its obligations under its stock option plans. The difference between the cost of treasury shares issued and the option price is charged to capital in excess of par value. Changes in shareholders' equity accounts are summarized below:
Common And Class B Treasury Other Shareholders' Equity ------------------ ----------------- ------------------------------------------- Capital In Net Unrealized Cumulative Shares Excess Of Shares Unearned (Loss)/Gain On Translation (000s) Amount Par Value (000s) Amount Compensation Investments Adjustment - -------------------------------------------------------------------------------------------------------------------------------- - - Balance at December 31, 1994 61,271 $ 24.2 $ 93.9 (2,279) $ (94.3) $ (3.2) $ -- $ 47.6 Net shares issued under stock option plans and restricted stock awards 196 -- 13.9 298 9.7 (10.3) -- -- Repurchase of Common and Class B stock -- -- -- (2,545) (94.1) -- -- -- Amortization of unearned compensation -- -- -- -- -- 4.3 -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- 37.5 -------------------------------------------------------------------------------------------------- Balance at December 30, 1995 61,467 24.2 107.8 (4,526) (178.7) (9.2) -- 85.1 Net shares (canceled) issued under stock option plans and restricted stock awards (118) -- (11.7) 428 15.5 (1.9) -- -- Repurchase of Common and Class B stock -- -- -- (1,847) (67.3) -- -- -- Amortization of unearned compensation -- -- -- -- -- 0.3 -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- 4.9 Unrealized holding loss on other investments -- -- -- -- -- -- (11.8) -- -------------------------------------------------------------------------------------------------- Balance at December 28, 1996 61,349 24.2 96.1 (5,945) (230.5) (10.8) (11.8) 90.0 Net shares (canceled) issued under stock option plans and restricted stock awards (294) -- (19.3) 621 29.2 3.1 -- -- Repurchase of Common and Class B stock -- -- -- (522) (21.8) -- -- -- Amortization of unearned compensation -- -- -- -- -- 2.6 -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- (60.9) Unrealized holding gain on other investments -- -- -- -- -- -- 11.8 -- -------------------------------------------------------------------------------------------------- Balance at December 27, 1997 61,055 $ 24.2 $ 76.8 (5,846) $(223.1) $ (5.1) $ -- $ 29.1 =========================================================================== =======================
Bausch & Lomb Incorporated and Consolidated Subsidiaries [56] From time to time, the board of directors may authorize the repurchase, at management's discretion, of Common shares. During 1997, 500,000 Common shares were repurchased. The board of directors has not authorized any additional repurchases. Unearned compensation relates to awards of restricted stock and is recorded at the date of award based on the market value of the shares and is amortized to expense as stock performance goals are met over the applicable vesting period. In 1988, the company's board of directors approved the adoption of a shareholder rights plan, in which preferred share purchase rights were distributed as a dividend at the rate of one right for each outstanding share of the company's Common and Class B stock. Common and Class B shares issued subsequent to the adoption of the rights plan automatically have preferred share purchase rights attached to them. Under certain circumstances each right entitles shareholders to purchase one two-hundredth of a share of Series A Preferred stock, par value $1.00 per share. The rights may become exercisable under certain circumstances involving actual or potential acquisitions of 20% or more of the outstanding Common and Class B stock by a person or group. The board of directors may substitute common stock equivalent preferred shares for Common shares for the exercise of stock purchase rights. Until the rights become exercisable, they have no dilutive effect on earnings per share. The rights, which are non-voting, may be redeemed by the company at a price of one-half cent per right at any time prior to the acquisition by a person or group of 20% of the outstanding shares of the company's Common and Class B stock. In the event a person or group has acquired 20%, but not more than 50%, of such shares, the company may redeem the rights of each holder, other than the acquirer, in exchange for either one share of Common stock or one two-hundredth of a share of Series A Preferred stock. During 1997, the board of directors evaluated a proposal, passed by shareholders at the 1997 annual meeting, to revoke this plan. The board concluded that the plan will be allowed to lapse on the scheduled expiration of the rights on July 1, 1998. 14. Fair Value Of Financial Instruments The carrying amount of cash, cash equivalents and short-term investments and notes payable approximates fair value because their maturity is generally less than one year in duration. The company places its cash, cash equivalents and short-term investments with multiple financial institutions in order to limit the amount of credit exposure with any one institution to between $25.0 and $50.0, based on its credit rating and asset base. The company's remaining financial instruments consisted of the following:
December 27, 1997 December 28, 1996 ---------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - -------------------------------------------------------------------------------------------------- Nonderivatives Other investments $ 546.4 $ 546.4 $ 560.3 $ 560.3 Long-term debt, including current portion $(515.2) $(516.4) $(324.3) $(320.9) =================================================== Derivatives held for purposes other than trading Foreign exchange instruments: Other current assets $ 45.3 $ 28.3 Accrued liabilities (40.5) (10.4) --------------------------------------------------- Net foreign exchange instruments $ 4.8 $ 2.4 $ 17.9 $ 26.9 =================================================== Interest rate instruments: Other current assets $ 17.5 $ 14.9 Accrued liabilities (12.6) (12.9) --------------------------------------------------- Net interest rate instruments $ 4.9 $ 20.7 $ 2.0 $ 5.4 ===================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries [57] 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 based upon a model which estimates the fair value of these items using market rates at year end or was based upon quoted market prices for similar instruments with similar maturities. 15. Derivative Financial Instruments Foreign Exchange Risk Management The company enters into foreign exchange forward and purchased option contracts primarily to hedge foreign currency transactions and equity investments in non-U.S. subsidiaries. At December 27, 1997, the company hedged aggregate exposures of $1,559.0 by entering into forward exchange contracts requiring purchases of $964.4 U.S. dollar equivalent currencies and sales of $594.6 U.S. dollar equivalent currencies. On December 28, 1996, hedged aggregate exposures were $1,434.1, with $818.0 and $616.1 of purchases and sales of U.S. dollar equivalent currencies, respectively. Of the outstanding contracts for both 1997 and 1996, the foreign currencies purchased were primarily Irish pounds as well as Singapore and Hong Kong dollars, and with respect to 1996, Swiss francs. The foreign currencies sold for the same periods were primarily German marks, Netherlands guilders and Singapore dollars. The company selectively hedges firm commitments that represent both a right and an obligation, mainly for committed purchase orders for foreign-sourced inventory. At year end 1997 and 1996, respectively, hedging activity related to assets and liabilities was 43% and 57%. The majority of the remaining hedging activity was related to the company's equity investments in non-U.S. subsidiaries. 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. The company selectively hedges foreign currency transaction and commitment exposures arising in countries with hyperinflationary economies, restrictive exchange controls and underdeveloped currency markets because hedging all such exposures is not cost effective. The estimated notional amount of such exposures that remained unhedged at December 27, 1997 was $32.6. Amortization of premiums or discounts on foreign exchange instruments, primarily Irish pound contracts and for 1997 German mark and Japanese yen contracts, resulted in income of approximately $6.7 and $3.6 for 1997 and 1996, respectively. This amount is highly sensitive to changes in interest rates in the countries whose currencies are to be exchanged. The company estimates that a 50 basis point net move in either U.S. or Irish interest rates would have impacted annualized pre-tax income in 1997 by approximately $2.9. Similar changes in interest rates in other countries would not have a material impact on reported results. Carrying value as presented in the table in Note 14--Fair Value Of Financial Instruments does not reflect unrecognized net premium income totaling $3.2 in 1997 and $5.4 in 1996. Factoring in these amounts with unrealized gains and losses, the company's outstanding foreign exchange contracts were in a net unrealized positive cash flow position of approximately $8.0 at December 27, 1997 as compared to $23.3 at December 28, 1996. The company estimates that for 1997 this net cash flow position, which is highly sensitive to movements in exchange rates, would have changed by $53.6 for each ten-cent move in the U.S. dollar to Irish pound exchange rate. Similar changes in exchange rates for other currencies would have substantially less of an impact on the company. Changes in periodic cash outflows that could result from such interest rate movements from maturing or terminated foreign exchange and option contracts would not adversely impact the company's overall liquidity position. Bausch & Lomb Incorporated and Consolidated Subsidiaries [58] Interest Rate Risk Management The following is a summary of the company's interest rate swap agreements by major type: December 27, December 28, Maturities 1997 1996 Through - -------------------------------------------------------------------------------- Receive fixed swaps-notional amount $465.0 $550.0 2003 Average receive rate 5.60-6.58% 5.60-6.58% Average pay rate 5.70-5.72% 5.63-5.68% Pay fixed swaps-notional amount $265.0 $265.0 2002 Average pay rate 6.48-7.29% 6.48-7.29% Average receive rate 5.70-5.72% 5.59-5.68% Floating/floating swaps-notional amount $136.3 $132.0 2000 Pay rate (NLG) 3.27% 2.65% Receive rate (USD) 5.50% 5.34% ======================================== The variable-rate portions of the swaps in the above table are based on either three-month LIBOR or the one-month U.S. composite commercial paper rate at December 27, 1997 and December 28, 1996. Changes in these rates would change the above disclosures and future cash flows. At December 27, 1997 and December 28, 1996 the company had outstanding an interest rate cap with a notional amount of NLG 15.5 million which protects the company from exposures to rising NLG interest rates. Credit Risk The company is exposed to credit risk to the extent of non-performance by counterparties to the foreign currency contracts and interest rate swaps discussed above. 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. 16. 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. Accordingly, no compensation cost has been recognized for the company's fixed stock option plans or its employee stock purchase plan. Had compensation expense for the company's fixed options been determined consistent with SFAS No. 123, the company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
Basic Earnings Diluted Earnings Net Earnings Per Share Per Share - ---------------------------------------------------------------------------------- As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma - ---------------------------------------------------------------------------------- 1997 $ 49.4 $ 43.5 $0.89 $0.79 $0.89 $0.79 1996 83.1 78.9 1.48 1.41 1.47 1.40 1995 112.0 110.5 1.94 1.91 1.93 1.90 =========================================================================== =======
The total number of shares available for grant in each calendar year for all plans combined 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. As of December 27, 1997, 3.2 million shares remain available for such grants. Bausch & Lomb Incorporated and Consolidated Subsidiaries [59] 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 1997, 1996 and 1995: 1997 1996 1995 - -------------------------------------------------------------------------------- Risk-free interest rate 5.66% 6.11% 5.39% Dividend yield 2.54% 2.42% 2.17% Volatility factor 25.17% 24.87% 24.88% Weighted average expected life (years) 5 5 5 ---------------------------------------- The weighted average value of options granted was $10.59, $9.34 and $10.45 in 1997, 1996 and 1995, respectively. A summary of the status of the company's fixed stock option plans at year end 1997, 1996 and 1995 is presented below:
1997 1996 1995 ---------------------------------------------------------------------------------------- Weighted Weighted Weighted Number Of Average Number Of Average Number Of Average Shares Exercise Price Shares Exercise Price Shares Exercise Price (000s) (Per Share) (000s) (Per Share) (000s) (Per Share) - ------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 5,030 $39.90 4,426 $40.84 3,891 $40.50 Granted 1,176 42.32 1,253 35.86 1,182 40.98 Exercised (432) 30.34 (204) 27.40 (207) 26.26 Forfeited (588) 41.99 (445) 43.60 (440) 44.92 ------- ----- ----- Outstanding at year end 5,186 $41.00 5,030 $39.90 4,426 $40.84 =========================================================================== ============ Options exercisable at year end 3,065 3,029 2,661 =========================================================================== ============
The following represents additional information about fixed stock options outstanding at December 27, 1997:
Options Outstanding Options Exercisable ------------------------------------------------ -------------------------------- Weighted Average Weighted Weighted Range Of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price Per Share (000s) (Years) (Per Share) (000s) (Per Share) - --------------------------------------------------------------------------------------------------------- $21 to 25 66 0.6 $21.93 66 $21.93 26 to 35 1,447 6.8 34.78 862 34.42 36 to 45 2,488 8.0 41.76 952 41.60 46 to 55 1,185 5.2 48.09 1,185 48.09 ------ ----- $21 to 55 5,186 6.9 $41.00 3,065 $41.67 =========================================================================== ===========
Bausch & Lomb Incorporated and Consolidated Subsidiaries [60] 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 including attainment of certain stock price performance goals, satisfactory job performance and continued employment until applicable vesting dates. Compensation expense is recorded based on the applicable vesting criteria and, for those awards with performance goals, as such goals are met. In 1997, 1996 and 1995, 61,600, 139,052 and 401,522 such awards were granted at weighted average market values of $41.92, $38.43 and $45.02 per share, respectively. The compensation expense relating to stock awards in 1997, 1996 and 1995 was $3.3, $1.3 and $5.6, respectively. 17. Litigation Since June 1994, the company has defended several shareholder actions against the company, its former Chief Executive Officer and Chairman, Daniel E. Gill, and four other officers, alleging that the defendants made false and misleading statements about expected financial results. These actions have been consolidated in the United States District Court for the Western District of New York. On November 17, 1997, the company announced that it had entered into a memorandum of understanding with counsel representing the plaintiffs, agreeing to pay $42.0 in full settlement of all claims. In entering into this proposed settlement, the company and the individual defendants have continued to deny all liability, but have settled in order to avoid the expense and burden of litigation. The claimants include purchasers of the company's Common stock from December 13, 1993 through January 25, 1995. The proposed settlement is subject to making appropriate notice to potential class members and a review by the Court of the fairness and adequacy of the terms of the settlement. The company's insurance carriers have agreed to contribute substantially toward this settlement and the company recorded a one-time charge against 1997 fourth-quarter earnings of $21.0, or $13.2 after taxes. Since December 1994, the company has been the subject of an investigation by the Securities and Exchange Commission (SEC) principally focused on the accounting treatment of (i) a 1993 contact lens sales program and (ii) Asian sunglass sales from late 1992 through early 1994. This investigation was concluded when the company, without admitting or denying liability, entered into a Consent Order with the SEC, which was announced on November 17, 1997. The Order imposed no financial penalties on the company. The company has stipulated to certification by a New York State Supreme Court of a nationwide class of purchasers of Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eye Wash between May 1, 1989 and June 30, 1995. This action arose out of matters commenced in 1994 and 1995 alleging that the company misled consumers in its marketing and sale of those products. Management vigorously defends the company's practices. 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 of 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. Bausch & Lomb Incorporated and Consolidated Subsidiaries [61] Report Of Independent Accountants To the Shareholders and Board of Directors of Bausch & Lomb Incorporated In our opinion, the accompanying consolidated financial statements appearing on pages 38 through 61 of this 1997 annual report of Bausch & Lomb Incorporated present fairly, in all material respects, the financial position of Bausch & Lomb Incorporated and its subsidiaries at December 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Rochester, New York January 23, 1998 Bausch & Lomb Incorporated and Consolidated Subsidiaries [62] Selected Financial Data
Dollar Amounts In Millions -- Except Per Share Data 1997 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- Results For The Year Net sales $1,915.7 $1,926.8 $1,932.9 $1,892.7 $1,830.1 $1,709.1 Net earnings 49.4 83.1 112.0 31.1 138.9 171.4 Basic earnings per share 0.89 1.48 1.94 0.53 2.34 2.89 Diluted earnings per share 0.89 1.47 1.93 0.52 2.31 2.84 Dividends per share 1.04 1.04 1.01 0.955 0.88 0.80 ====================================================================== Year-End Position Working capital $ 202.9 $ 18.5 $ 70.9 $ 277.4 $ 669.6 $ 514.9 Total assets 2,772.9 2,603.4 2,550.1 2,457.7 2,493.0 1,873.7 Short-term debt 343.8 482.1 383.5 300.6 244.6 208.9 Long-term debt 510.8 236.3 191.0 289.5 321.0 277.7 Shareholders' equity 818.4 881.9 929.3 914.4 909.2 898.2 ====================================================================== Other Ratios And Statistics Return on sales 2.6% 4.3% 5.8% 1.6% 7.6% 10.0% Return on average shareholders' equity 5.9% 9.2% 11.9% 3.2% 15.5% 20.3% Return on average total assets 1.8% 3.1% 4.5% 1.2% 6.8% 9.5% Average income tax rate 38.7% 37.7% 36.9% 52.6% 33.5% 32.4% Current ratio 1.2 1.0 1.1 1.4 1.9 1.9 Total debt to shareholders' equity 104.4% 81.5% 61.8% 64.5% 62.2% 54.2% Total debt to capital 51.1% 44.9% 38.2% 39.2% 38.3% 35.1% Capital expenditures $ 126.1 $ 130.3 $ 95.5 $ 84.8 $ 107.2 $ 119.3 ======================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries [63] Divisions and Subsidiaries THE AMERICAS: United States Arnette Optic Illusions, Inc. San Clemente, California(1) Bausch & Lomb Lamex, Inc. Miami, Florida(2) Bausch & Lomb Pharmaceuticals Tampa, Florida(1) Bausch & Lomb Surgical Claremont, California(1) Irvine, California(1) Clearwater, Florida(1) St. Louis, Missouri(1) Pearl River, New York(1) Charles River Laboratories, Inc. Hollister, California(1) Summerland Key, Florida(1) Windham, Maine(1) Wilmington, Massachusetts(1) Portage, Michigan(1) O'Fallon, Missouri(1) Pittsfield, New Hampshire(1) Newfield, New Jersey(1) Stone Ridge, New York(1) Raleigh, North Carolina(1) Charleston, South Carolina(1) Houston, Texas(1) Dahlberg, Inc. Golden Valley, Minnesota(1) East Acres Biologicals Southbridge, Massachusetts(1) Eyewear Rochester, New York(1) San Antonio, Texas(1) Polymer Technology Corporation Wilmington, Massachusetts(1) Revo, Inc. Sunnyvale, California(1) SPAFAS Lebanon, Connecticut(1) Preston, Connecticut(1) Storrs, Connecticut(1) Voluntown, Connecticut(1) Gainsville, Georgia(1) Eureka, Illinois(1) Roanoke, Illinois(1) Vision Care Sarasota, Florida(1) Rochester, New York(1) Greenville, South Carolina(1) Lynchburg, Virginia(1) Wilmington Partners, L.P. Wilmington, Massachusetts Brazil BL Industria Otica, Ltda. Porto Alegre(1) Rio de Janeiro(1) Canada Bausch & Lomb Canada, Inc. Richmond Hill, Ontario(2) Charles River Canada, Inc. St. Constant, Quebec(1) Dahlberg, Inc. Kitchener, Ontario(1) Eyewear Mississauga, Ontario(1) Mexico Operadora de Contactologia, S.A. de C.V. Mexico City(1) Eyewear Nuevo Laredo(1) Aves Libres de Patogenos Especiaficios SA Puebla(1) Puerto Rico Bausch & Lomb Puerto Rico, Inc. Rio Piedras(2) Venezuela Bausch & Lomb Venezuela, C.A. Caracas(2) 1 Manufacturing, Production and Distribution 2 Direct Marketing and Sales Bausch & Lomb Incorporated and Consolidated Subsidiaries [64] EUROPE, MIDDLEEAST& AFRICA: Austria Bausch & Lomb G.m.b.H. Vienna(2) Belgium Bausch & Lomb Surgical Antwerp(2) Czech Republic Charles River International Prague(1) England Europe, Middle East & Africa Headquarters London(2) Bausch & Lomb Surgical Berkshire(1) Bausch & Lomb U.K., Limited London(2) Charles River U.K., Ltd. Margate(1) Madden & Layman Limited St. Leonards-on-Sea(1) Shamrock (Great Britain) Limited Henfield(1) Egypt Bausch & Lomb Surgical Cairo(1) France Bausch & Lomb France S.A. Le Mesnil St. Denis(2) Bausch & Lomb Surgical Lyon(1) Charles River France S.A. Lyon(1) St. Aubin-les-Elbeuf(1) Iffa Credo S.A. L'Arbresle Cedex(1) Germany Bausch & Lomb Surgical Heidelberg(1) Munich(1) Charles River WIGA G.m.b.H. Extertal Bosingfeld(1) Kisslegg(1) Sulzfeld(1) Dr. Gerhard Mann, Chem.-Pharm.Fabrik G.m.b.H. Berlin(1) Greece Bausch & Lomb International, Inc. Athens(2) Hungary Charles River International Budapest(1) Italy Bausch & Lomb-IOM S.p.A. Milan(1) Rome(2) Bausch & Lomb Surgical Rome(1) Charles River Italia S.p.A. Calco(1) Killer Loop S.p.A. Calco(1) Netherlands Bausch & Lomb B.V. Heemstede(1) European Logistics Center Amsterdam(1) Portugal Bausch & Lomb Espana S.A. Lisbon(2) Republic of Ireland Bausch & Lomb Ireland Waterford(1) Republic of South Africa Bausch & Lomb South Africa (Pty.) Limited Randburg(1) Russia Bausch & Lomb Distops Moscow(2) Scotland Award plc Livingston(1) Spain Bausch & Lomb Conoptica Barcelona(1) Madrid(1) Bausch & Lomb Espana, S.A. Barcelona(1) Madrid(2) Bausch & Lomb Surgical Barcelona(1) Criffa, S.A. Barcelona(1) Sweden Bausch & Lomb Surgical Helsingborg(1) Bausch & Lomb Svenska A.B. Stockholm(1) Switzerland Bausch & Lomb Distops S.A. Geneva(2) Turkey Bausch & Lomb Saglik ve Optik Urunleri Tic.A.S. Istanbul(1) ASIA & PACIFIC: Australia SPAFAS Melbourne(1) Woodend(1) Bausch & Lomb (Australia) Pty. Limited Sydney(1) Hong Kong North Asia Headquarters(2) Bausch & Lomb (Hong Kong) Limited(1) Bausch & Lomb-Lord Co. (Hong Kong) Limited(2) India Bausch & Lomb India Limited Bhiwadi(1) New Delhi(2) Japan B.L.J. Company Limited Tokyo(1) Charles River Japan, Inc. Atsugi(1) Hino(1) Tsukuba(1) Yokohama(2) Malaysia South Asia Headquarters Selangor(2) Bausch & Lomb (Malaysia) Sdn. Bhd. Selangor(2) New Zealand Bausch & Lomb (New Zealand) Limited Auckland(2) People's Republic of China Bausch & Lomb China, Inc. Beijing(1) Guangzhou(1) Spafas Jinan Poultry Company, Ltd. Jinan(1) Zhanjiang A&C Biological Ltd. Zhanjiang(1) Republic of China Bausch & Lomb Taiwan Limited Taipei, Taiwan(1) Singapore Bausch & Lomb (Singapore) Pte. Ltd.(1) South Korea Bausch & Lomb Korea, Ltd. Seoul(1) Bausch & Lomb Incorporated and Consolidated Subsidiaries [65] Directors and Officers DIRECTORS William H. Waltrip(1) Chairman Bausch & Lomb Director since: 1985 Franklin E. Agnew(1)(3) Business Consultant Pittsburgh, Pennsylvania Director since: 1982 William Balderston III(1)(3)(4) Retired Executive Vice President The Chase Manhattan Bank Rochester, New York Director since: 1989 William M. Carpenter(1) President and Chief Executive Officer Bausch & Lomb Director since: 1996 Domenico De Sole(2) President and Chief Executive Officer Gucci Group N.V. Florence, Italy Director since: 1996 Jonathan S. Linen(3) Vice Chairman American Express Company New York, New York Director since: 1996 Ruth R. McMullin(2) Business Consultant 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 Kenneth L. Wolfe(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 H. Waltrip Chairman 2 years of service with the company Named to current position: 12/95 William M. Carpenter President and Chief Executive Officer 3 years of service with the company Named to current position: 1/97 Dwain L. Hahs Executive Vice President and President - Eyewear 21 years of service with the company Named to current position: 4/97 Carl E. Sassano Executive Vice President and President - Vision Care 25 years of service with the company Named to current position: 12/96 Senior Vice Presidents: Daryl M. Dickson Human Resources 2 years of service with the company Named to current position: 11/96 James C. Foster Charles River Laboratories, Inc. 14 years of service with the company Named to current position: 12/94 Stephen C. McCluski Chief Financial Officer 10 years of service with the company Named to current position: 1/95 Thomas M. Riedhammer, Ph.D. President-Worldwide Pharmaceuticals 16 years of service with the company Named to current position: 11/94 Robert B. Stiles General Counsel 17 years of service with the company Named to current position: 6/97 Vice Presidents: Robert H. Blankemeyer Chief Operating Officer - Bausch & Lomb Surgical less than one year of service with the company Named to current position: 1/98 Omar Casal South Asia 13 years of service with the company Named to current position: 12/97 Robert D. Colangelo Chief Information Officer 9 years of service with the company Named to current position: 11/97 Alan P. Dozier North American Vision Care 13 years of service with the company Named to current position: 2/97 Hakan S. Edstrom President - Bausch & Lomb Surgical less than one year of service with the company Named to current position: 1/98 Alan H. Farnsworth Business Development 10 years of service with the company Named to current position: 7/97 James T. Horn Global Product Supply - Eyewear 6 years of service with the company Named to current position: 5/96 Barbara M. Kelley Corporate Communications 15 years of service with the company Named to current position: 4/93 Jurij Z. Kushner Controller 17 years of service with the company Named to current position: 1/95 Thomas W. Lance Global Operations - Vision Care 1 year of service with the company Named to current position: 7/97 John M. Loughlin North Asia 17 years of service with the company Named to current position: 7/97 Steve Markwell Europe, Middle East and Africa - Eyewear 4 years of service with the company Named to current position: 12/97 Read McNamara Latin America 2 years of service with the company Named to current position: 7/97 James F. Milton Japan 27 years of service with the company Named to current position: 12/94 Stephen J. Osbaldeston Healthcare/Vision Accessories 12 years of service with the company Named to current position: 12/97 Angela J. Panzarella Investor Relations 9 years of service with the company Named to current position: 7/97 Alan H. Resnick Treasurer 25 years of service with the company Named to current position: 5/86 Paul Ruddlesdin Europe, Middle East and Africa - Vision Care 15 years of service with the company Named to current position: 12/97 James J. Ward Reengineering Initiatives 21 years of service with the company Named to current position: 5/97 David G. Whalen North American Eyewear 7 years of service with the company Named to current position: 7/97 Secretary: Jean F. Geisel 22 years of service with the company Named to current position: 7/97 Bausch & Lomb Incorporated and Consolidated Subsidiaries [66] [inside back cover] Corporate Information Bausch & Lomb on the Internet Corporate, product, financial and shareholder information, including news releases, financial filings and stock quotes are available at Bausch & Lomb's worldwide web site: www.bausch.com Corporate Headquarters: Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 Telephone: (716) 338-6000 (800) 344-8815 Bausch & Lomb News On Demand: Bausch & Lomb's news releases are available on our website or by calling: (800) 758-5804 ext. 109877 Financial Literature: Copies of Bausch & Lomb's annual reports and financial reports filed with the Securities and Exchange Commission are available on our website, by mail (attn: Investor Relations) or by calling: (888) 884-8702 (716) 338-5757 Investor Relations: Security analysts and investors seeking information concerning company operations, shareholder programs or dividend policy may contact: Angela J. Panzarella Vice President, Investor Relations Telephone (716) 338-6025 apanzarella@bausch.com Media Inquiries: News media representatives may contact: Holly Echols Director, Media Relations Telephone (716) 338-8064 hechols@bausch.com Transfer Agent: Shareholders seeking information regarding their individual accounts or dividend payments may contact our stock transfer agent: BankBoston, N.A. c/o Boston Equiserve P.O. Box 8040 Boston, MA 02266-8040 Telephone (800) 730-4001 www.equiserve.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: BankBoston, N.A. c/o Boston Equiserve P.O. Box 8040 Boston, MA 02266-8040 Telephone (800) 730-4001 www.equiserve.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: Alrex Arnette Award Bausch & Lomb Boston Boston Advance Boston MultiVision Charles River Laboratories Contributing to the Search for Healthier Lives Crolom Curel Dr. Mann Pharma Duolube Gold Medalist Hansatome Inertia Killer Loop Killer Loop Street Sport Liposic Medalist Miracle-Ear Mirage Moisture Eyes PM Ocutricin Opcon-A Optima Optima FW Orbs PureVision Ray-Ban ReNu ReNu MultiPlus Revo Revo Shapes See How It Feels Sensitive Eyes SideStreet SofLens SofLens66 Soft Sense Storz Millennium Blues Brothers 2000 is a trademark of Universal Pictures EVA is a trademark of Stern Stewart, Inc. Lotemax is a trademark of Pharmos Corporation Men in Black (MiB) is a trademark of Columbia Pictures Industries, Inc. Muro is a trademark of Muro Pharmaceuticals Porsche Design is a trademark of Porsche Design GmbH Polytrim is a trademark of Allergan Rogaine is a trademark of Pharmacia & Upjohn Co. Tobrex is a trademark of Alcon Laboratories, Inc. Design: Inc Design, New York City Printing: Daniels Printing, Everett, Massachusetts Typography: Bowne Business Communications, Secaucus, New Jersey Executive & Lifestyle Photography: Ted Kawalerski, New York City Product Photography: Rick Burda, New York City (C) 1998 Bausch & Lomb Incorporated All Rights Reserved Worldwide [Recycle symbol] This book is printed on recycled paper. [back cover] see how it feels [Photos: people, close-up of an eye, Ray-ban poster with Blues Brothers 2000, man in sunglasses, lab technicians in a lab, a woman's face] BAUSCH & LOMB Bausch & Lomb, One Bausch & Lomb Place, Rochester, New York 14604 EX-21 9 EXHIBIT 21 Bausch & Lomb Incorporated Exhibit 21 Subsidiaries (as of December 27, 1997) Jurisdiction Under Name Which Organized Bausch & Lomb AG Switzerland Arnette Europe SARL France Arnette Optic Illusions, Inc. California Bausch & Lomb (Australia) Pty. Limited Australia Award plc Scotland Bausch & Lomb (Bermuda) Finance Company, Ltd. Bermuda Bausch & Lomb (Bermuda) Limited Bermuda Bausch & Lomb B.V. Netherlands Bausch & Lomb B.V.B.A. Belgium Bausch & Lomb-Lord (BVI) Incorporated Virgin Islands Bausch & Lomb Canada Inc. Canada Charles River BRF, Inc. Delaware Charles River Laboratories Inc. Delaware Bausch & Lomb China, Inc. Delaware B&L (China) Investment Company Ltd. China 115 Clinton Avenue, Inc. New York Cordelia B.V. Netherlands CR Pharmservices, Inc. Massachusetts Dahlberg, Inc. Minnesota Bausch & Lomb Danmark A/S Denmark 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 OY Bausch & Lomb Finland AB Finland Bausch & Lomb Foreign Sales Corporation Barbados Bausch & Lomb Foundation, Inc. New York Bausch & Lomb France S.A. France Bausch & Lomb Fribourg SA Switzerland Bausch & Lomb GmbH Austria Guangzhou Bausch & Lomb 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 Bausch & Lomb Ireland Ireland Bausch & Lomb IOM S.p.A. Italy B.L.J. Company Limited Japan Killer Loop Eyewear S.p.A. Italy Bausch & Lomb Korea, Ltd. Korea Bausch & Lomb Lamex, Inc. Delaware Madden & Layman, Ltd. England Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia Miracle-Ear, Inc. Minnesota Bausch & Lomb (New Zealand) Limited New Zealand Bausch & Lomb Norway A/S Norway Operadora de Contactologia, S.A. de C.V. Mexico Bausch & Lomb Opticare, Inc. New York Bausch & Lomb Panama, Inc. Panama Bausch & Lomb Pharmaceuticals, Inc. Delaware Polymer Technology Corporation New York P.T. Bausch & Lomb Indonesia (Distributing) Indonesia P.T. Bausch & Lomb Manufacturing Indonesia Bausch & Lomb Puerto Rico, Inc. Delaware Bausch & Lomb Realty Corporation New York Revo, Inc. Delaware Revo Europe Limited England RHC Holdings, Inc. Delaware Segrab, Inc. California Bausch & Lomb Services Corp. New York Sight Pharmaceuticals Incorporated Delaware Sight Savers, Inc. Delaware Bausch & Lomb (Singapore) Pte. Ltd. Singapore Bausch & Lomb South Africa (Pty.) Ltd. South Africa Bausch & Lomb South Asia, Inc. Delaware South Asia Management Company Sdn. Bhd. Malaysia Spafas, Inc. Delaware Bausch & Lomb Svenska, AB Sweden Bausch & Lomb Taiwan Limited Taiwan Bausch & Lomb Turkey Turkey Bausch & Lomb U.K. Limited England Bausch & Lomb Venezuela, S.A. Venezuela Wilmington Management Corp. Delaware Wilmington Partners L.P. Massachusetts Windmill Investments N.V. Netherlands Windmill Investors Ltd. Bermuda Windvest I N.V. Antilles EX-23 10 EXHIBIT 23 Exhibit 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-56066, 2-85158, 33- 15439 and 33-35667) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-51117) of Bausch & Lomb Incorporated of our report dated January 23, 1998 appearing in the 1997 Annual Report to Shareholders of Bausch & Lomb Incorporated which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our above report on the Financial Statement Schedule. PRICE WATERHOUSE LLP Rochester, New York March 10, 1998 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 23, 1998 appearing in the 1997 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. PRICE WATERHOUSE LLP Rochester, New York January 23, 1998 EX-24 11 EXHIBIT 24 Exhibit 24 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 27, 1997, 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 24th day of February 1998. /s/Franklin E. Agnew /s/John R. Purcell /s/William Balderston III /s/Linda Johnson Rice /s/William M. Carpenter /s/Alvin W. Trivelpiece /s/Domenico De Sole /s/William H. Waltrip /s/Jonathan S. Linen /s/Kenneth L. Wolfe /s/Ruth R. McMullin EX-27 12 EXHIBIT 27
5 1,000 12-MOS DEC-27-1997 DEC-27-1997 182,371 1,373 388,775 14,015 324,293 1,090,189 1,175,160 (594,948) 2,772,850 887,311 510,787 24,129 0 0 794,221 2,772,850 1,915,733 1,915,733 884,742 884,742 882,943 4,310 56,046 118,002 45,655 49,359 0 0 0 49,359 0.89 0.89 Income Before Taxes and Minority Interest.
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