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UNITED STATES _____________________ FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of _____________________ For the fiscal year ended Commission file number BAUSCH & LOMB INCORPORATED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The Securities Exchange Act of 1934
December 28, 2002
1-4105
NEW YORK |
16-0345235 |
(State or other jurisdiction of |
(I.R.S. Employer |
ONE BAUSCH & LOMB PLACE, ROCHESTER, NEW YORK |
14604-2701 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone no., including area code: (585) 338-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on |
Common Stock, $0.40 par value |
New York Stock Exchange |
$194,600,000 6.75% Notes, Due 2004
|
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 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes
[ X ] No [ ]The aggregate market value of the voting stock, computed using the average bid and asked price of such stock, held by non-affiliates of the registrant as of June 28, 2002 was $1,792,628,491. 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 March 7, 2003, was 53,944,959, consisting of 53,452,587 shares of Common stock and 492,372 shares of Class B stock,
which are identical with respect to dividend and liquidation rights, and vote together as a single class for all purposes.DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II, IV
Parts II & III |
Bausch & Lomb Incorporated Annual Report for the fiscal year ended December 28, 2002 ("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. Bausch & Lomb Incorporated Proxy Statement dated March 21, 2003 ("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. |
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. [ ]
TABLE OF CONTENTS |
||
PART I |
PAGE |
|
Item 1. |
Business |
2 |
Item 2. |
Properties |
5 |
Item 3. |
Legal Proceedings |
7 |
Item 4. |
Submission of Matters to a Vote of Security Holders |
8 |
PART II |
||
Item 5. |
Market for Bausch & Lomb Incorporated's Common Stock and Related Shareholder Matters |
10 |
Item 6. |
Selected Financial Data |
10 |
Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
10 |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
10 |
Item 8. |
Financial Statements and Supplementary Data |
10 |
Item 9. |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
10 |
PART III |
||
Item 10. |
Directors and Executive Officers of Bausch & Lomb Incorporated |
11 |
Item 11. |
Executive Compensation |
11 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management |
12 |
Item 13. |
Certain Relationships and Related Transactions |
12 |
Item 14. |
Controls and Procedures |
12 |
PART IV |
||
Item 15. |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
13 |
Signatures |
|
15 |
Certifications |
16 |
|
Schedules |
|
19 |
Exhibit Index |
|
20 |
Exhibits |
(Attached to this Report on Form 10-K) |
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Bausch & Lomb Incorporated is a world leader in the development, manufacture and marketing of healthcare products for the eye, 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 2002 are discussed below. Per share amounts in the remainder of this section reflect December 2002 year-to-date diluted average shares outstanding.
Revenues from continuing operations for the year ended December 28, 2002 were $1,816.7 million, an increase of $151.2 million from 2001. Net earnings for 2002 amounted to $72.5 million, or $1.34 per share, compared to 2001 net earnings of $21.2 million, or $0.39 per share. Income from continuing operations was $72.5 million or $1.34 per share in 2002. Income from continuing operations was $42.0 million or $0.78 per share in 2001. Results for 2001 include an after tax loss on an adjustment to the disposal of discontinued operations of $21.1 million or $0.39 per share and an after tax benefit from a change in accounting principle of $0.3 million.
The company's strategy is to target those portions of the eye care market with strong growth potential or good profit margins or both. The company believes its fundamental strengths--sound strategy, excellent technology, global commercial capability and a strong brand--will permit it to take advantage of the opportunities in mature and developing markets.
Contact Lens Bausch & Lomb pioneered soft contact lens technology and currently has one of the broadest offerings of contact lenses in the world. Currently, the contact lens market is growing in the mid-single digits, with certain segments growing more quickly than others. The company's strategy is to focus its development efforts in the faster-growing sustainable market segments, while capitalizing on the breadth of its entire portfolio. Long-term, the company believes its contact lens business will grow as a result of new products and accelerating success outside the U.S. Early in 2002, the company launched SofLens66 Toric, its planned replacement lens for people with astigmatism, in Japan and plans to launch additional products over the next several years into that important market. The company also introduced SofLens Multi-Focal, a cast-molded multifocal lens in the U.S. in 2002.
Lens Care The lens care market is relatively mature but very profitable and cash generative. The company's strategy is to increase its share through technological enhancements and extensions to its product lines. Through enhanced regulatory approvals, its flagship brand, ReNu, regained its U.S. market leadership position in early 2002. The company's Boston brand of products for the care of rigid gas permeable contact lenses holds a commanding share of its market in the U.S., and is the market leader worldwide.
Pharmaceuticals The company's pharmaceutical product category includes both generic and branded prescription pharmaceuticals as well as over-the-counter medications, and vision accessories. The company's newest product in the category is Ocuvite PreserVision, a vitamin supplement sold over-the-counter, often on the recommendation of eye care professionals. The exact formulation of vitamins and minerals in Ocuvite PreserVision was shown in a 10-year study by the National Eye Institute to reduce the risk of blindness for patients with high risk of developing age-related macular degeneration. The company's strategic focus for its pharmaceuticals category is on proprietary ophthalmic products, and drug delivery, particularly for vitreoretinal diseases.
Cataract and Vitreoretinal Cataract surgery is the most commonly performed surgical procedure in the U.S. today. The company's cataract and vitreoretinal offerings include a broad line of intraocular lenses as well as the Millennium line of Phacoemulsification equipment. Phacoemulsification is the procedure by which the patient's natural lens is extracted during cataract surgery. The company also sells disposable surgical packs and instruments that are used during the procedure. The company's goal in the cataract and vitreoretinal category is to improve its market share position. It plans to accomplish this through technological advances to its intraocular lens lines and through increased Millennium placements, which should in turn lead to increase annuity sales of disposables and surgical packs. Another strategic focus is to leverage the company's broad portfolio of products and equipment to cross-sell its pharmaceutical and refractive surgery products.
Refractive The company is a global technology leader for refractive surgery equipment used in the LASIK (Laser Insitu Keratomileusis) surgical procedure. The company's Hansatome microkeratome, the precision cutting tool to create the corneal flap, is the most widely used microkeratome today. The company also manufactures the disposable microkeratome blades that are replaced for each patient. The company has begun the process of obtaining U.S. Food and Drug Administration or FDA, approval for the company's Zyoptix system for customized vision correction, a product commercially available outside the U.S. for over a year.
(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Information concerning sales, operating earnings and assets attributable to each of the company's operating segments is set forth on pages 26-28 under the section entitled "Net Sales and Income by Business Segment" and pages 59-61 under Note 6 entitled "Business Segment and Geographic Information" of the Annual Report and is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Operating Segments - The company's management structure is organized on a regional basis for commercial operations. The research and development and product supply functions are managed on a global basis. The company's business segments are comprised of the Americas region; the Europe, Middle East and Africa region (Europe); the Asia region; the Research, Development and Engineering organization and the Global Supply Chain organization. Information concerning sales by segment is set forth on pages 26-28 of the Annual Report under the section entitled "Net Sales and Income by Business Segment" and under Note 6 entitled "Business Segment and Geographic Information" as found on pages 59-61 of the Annual Report and is incorporated herein by reference.
Products - In each geographic segment the company markets products in five product categories: contact lens, lens care, pharmaceuticals, cataract and vitreoretinal, and refractive. Below is a description of each product category to the extent that it is material to an understanding of the company's operations.
Contact Lens -
The contact lens product category includes, among others, traditional, planned replacement disposable, daily disposable, multifocal, continuous wear and toric soft lenses and rigid gas permeable lenses marketed to licensed eye care professionals and health product retailers by the company's sales force.Lens Care - The lens care category includes, among others, multi-purpose solutions, enzyme cleaners and saline solutions marketed to licensed eye care professionals, health product retailers, independent pharmacies, drug stores, food stores and mass merchandisers by the company's sales force and distributors.
Pharmaceuticals - The pharmaceuticals category includes generic and proprietary prescription ophthalmic drugs, ocular vitamins, over-the-counter medications and vision accessories marketed by the company's sales force and distributed through wholesalers, independent pharmacies, drug stores, food stores, mass merchandisers and hospitals.
Cataract and Vitreoretinal - The cataract and vitreoretinal category includes products and equipment used for cataract and vitreoretinal procedures marketed by the company's sales force to ophthalmic surgeons, hospitals, ambulatory surgery centers and distributors.
Refractive - The refractive category includes lasers, microkeratomes, diagnostic equipment and other products and equipment used in refractive surgery marketed by the company's sales force to ophthalmic surgeons, hospitals, ambulatory surgery centers and distributors.
Suppliers and Customers - Materials and components for each of the company's product categories are purchased from a wide variety of suppliers; the loss of any one supplier would not adversely affect the company's business to a significant extent. The company's five product categories have different customer bases, from local drug stores to hospital chains to independent practitioners and combined purchase organizations for managed care organizations. No material part of the company's business, taken as a whole, is dependent upon a single or a few customers.
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 product category. The company actively pursues technology development and acquisition as a means to enhance its competitive position in its product categories.
In the contact lens product line, Bausch & Lomb, Medalist, Boston, Optima FW, PureVision, and SofLens trademarks receive substantial recognition from consumers and eye care professionals. In the lens care product category, the company has developed significant consumer and eye care professional recognition of products sold under the Bausch & Lomb, ReNu, ReNu MultiPlus, Sensitive Eyes, and Boston trademarks. Bausch & Lomb, Dr. Mann Pharma, Chauvin, Ocuvite, Ocuvite Preservision, Lotemax and Alrex are trademarks receiving substantial consumer recognition in the pharmaceutical product line. Bausch & Lomb, Millennium and Hydroview are trademarks receiving substantial professional recognition in the cataract product category. In the refractive product line, the company has developed substantial professional recognition of products sold under the Hansatome, Orbscan, Technolas, and Zyoptix trademarks.
The company is currently engaged in litigation with CIBA Vision Corporation, the eyecare unit of Novartis AG, and its affiliates in various jurisdictions relative to silicon hydrogel contact lens technology, including the company's PureVision contact lens product line. In one such case, the U.S. District Court for the District of Delaware ruled that the company's PureVision product infringes a patent owned by Wesley Jessen Vision Care, Inc., a subsidiary of CIBA Vision. The court enjoined the company's further manufacture and sale of the PureVision product in the United States. This decision was affirmed by the U.S. Court of Appeals for the Federal Circuit on February 12, 2003. (See Item 3. Legal Proceedings of this Report on Form 10-K for a further discussion of the litigation with CIBA and related entities.)
Seasonality and Working Capital - Because of the nature of the products sold, the company is not significantly impacted by seasonality issues. In general, the working capital requirements in each of the company's segments are typical of those businesses.
Competition and Markets - The company markets each of its product categories throughout the world. Each category is highly competitive in both U.S. and non-U.S. markets. For all products, the company competes on the basis of product performance, quality, technology, price, service, warranty and reliability.
Research and Development - Research and development constitutes an important part of the company's activities. The company's research and development expenditures included in continuing operations totaled $128.4 million in 2002, as compared to $122.0 million in 2001 and $121.5 million in 2000.
Government Regulation
- The company's products are subject to regulation by governmental authorities in the U.S. and other markets. These authorities, including the Food and Drug Administration (FDA) in the U.S., generally require extensive testing of new products prior to sale and have jurisdiction over the safety, efficacy and manufacturing of products, as well as product labeling and marketing. In most cases, significant resources must be spent to bring a new product to market in compliance with these regulations. The regulation of pharmaceutical products and medical devices, both in the U.S. and in other markets, has historically been subject to change. Delays in the regulatory approval process may result in delays in coming to market with new products and extra costs to satisfy regulatory requirements.Environment - Although the company is unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on its capital expenditures, earnings or competitive position. Capital expenditures for property, plant and equipment for environmental control facilities were not material during 2002 and are not anticipated to be material for either 2003 or 2004.
Number of Employees - The company employed approximately 11,500 persons as of January 1, 2003.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Information as to sales and long-lived assets attributable to U.S. and non-U.S. geographic regions is set forth on pages 29-30 under the section entitled "Net Sales and Income by Geographic Region" and the section entitled "Geographic Region" as found on pages 61-62 of the Annual Report and is incorporated herein by reference.
(e) AVAILABLE INFORMATION
Bausch & Lomb Incorporated's internet address is http://www.bausch.com. Bausch & Lomb Incorporated's filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge at http://www.bausch.com as soon as reasonably practicable after the company electronically files such material with, or furnishes it to the SEC.
ITEM 2. PROPERTIES
The principal physical properties (and their primary functions) of the company at March 1, 2003 are listed below. Except where otherwise indicated by footnote, all properties shown are held in fee and are not subject to major encumbrances. The company considers its facilities suitable and adequate for the operations involved. All facilities are being productively utilized. As discussed in Item 1 (c), the company's segments are comprised of the Americas region, the Europe, Middle East and Africa region (Europe), the Asia region, the Research, Development and Engineering organization and the Global Supply Chain organization. As indicated by the listing below, the majority of the company's facilities are being utilized to perform more than one operating function and, as such, may house the functions of multiple segments. Manufacturing functions are generally within the Global Supply Chain Segment, R&D functions are generally within the Research, Development and Engineering Segment, Warehouse/Distribution functions are primarily within the Commercial Segment (Americas, Europe or Asia) and Sales/Administrative/Office functions primarily support other functions being performed at the respective facility. A facility which is solely used for Sales/Administrative/Office functions is within the Commercial Segment, except for the Rochester, NY (Headquarters) property which is part of corporate administration.
|
|
Warehouse/ |
Sales/Administration/ |
|
Clearwater, FL |
X |
X |
|
X |
Miami, FL (1) |
X |
|
|
|
Tampa, FL (2) |
X |
X |
X |
X |
Wilmington, MA (1) |
X |
|
|
X |
Earth City, MO (1) |
|
|
X |
|
Manchester, MO |
X |
|
|
|
St. Louis, MO (2) |
X |
X |
X |
X |
Rochester, NY (Headquarters) |
|
|
|
X |
Rochester, NY (Optics Center) (1) |
X |
X |
|
X |
Greenville, SC (2) |
X |
|
X |
X |
Salt Lake City, UT (1) |
X |
X |
|
X |
Lynchburg, VA (1) |
|
|
X |
X |
North Ryde, Australia (1) |
|
|
X |
X |
Porto Alegre, Brazil |
X |
X |
X |
X |
Mississauga, Canada (1) |
|
|
X |
X |
Beijing, China |
X |
|
X |
X |
Aubenas, France (2) |
X |
|
|
X |
Montpellier, France (1) |
|
X |
|
X |
Berlin, Germany |
X |
X |
X |
X |
Munich, Germany (1) |
X |
X |
X |
X |
Schonkirchen, Germany |
X |
|
X |
X |
Chai Wan, Hong Kong (1) |
|
|
X |
|
Taikoo Shing, Hong Kong (1) |
|
|
|
X |
Bhiwadi, India |
X |
|
||
Waterford, Ireland (1) |
X |
X |
X |
X |
Milan, Italy (2) |
X |
|
X |
X |
Tokyo, Japan (1) |
|
X |
X |
X |
Hoofdoorp, Netherlands (1) |
|
|
X |
X |
Schiphol, Netherlands (1) |
|
|
X |
X |
Livingston, Scotland (1) |
X |
|
X |
X |
Madrid, Spain |
|
|
X |
X |
Kingston-Upon-Thames, UK |
|
|
|
X |
(1) Leased space.
(2) Includes both owned and leased properties.
ITEM 3. LEGAL PROCEEDINGS
On April 13, 2001 a shareholder class action lawsuit was filed in the U.S. District Court for the Western District of New York. Four other similar lawsuits were filed in both the Western and Southern Districts of New York, with the company's Chief Financial Officer, Stephen C. McCluski, and former Chairman and Chief Executive Officer, William M. Carpenter, and former President, Carl E. Sassano, named as defendants. The complaints allege that the value of the company's stock was inflated artificially by alleged false and misleading statements about expected financial results. The plaintiffs seek to represent a class of shareholders who purchased company common stock between January 27, 2000 and August 24, 2000. On October 15, 2001 all lawsuits were consolidated in the U.S. District Court for the Western District of New York. The company intends to defend itself vigorously against these claims and has filed a motion to dismiss the consolidated action.
The company and its subsidiaries are currently involved in six pending patent proceedings relating to silicon hydrogel contact lens technology, including its PureVision contact lens product line. Five of these proceedings were commenced by CIBA Vision Corporation (CIBA) and related entities, in each case alleging that the PureVision lens product infringes intellectual property held by them. The first of these lawsuits was filed on March 8, 1999 in the U.S. District Court for the Northern District of Georgia, followed by other lawsuits commenced in the Federal Court of Melbourne, Australia (filed on February 29, 2000), the U.S. District Court for the District of Delaware (filed on May 3, 2001), the Administrative Court of Duesseldorf, Germany (filed on September 7, 2001) and the High Court in Dublin, Ireland (filed on March 11, 2003). In the Georgia matter, the parties are conducting discovery and the company has filed two motions for summary judgment. In the Australia matter, the parties are in the pleading stage and the Court has set a trial date of October 6, 2003. In the Delaware matter, the trial court ruled on June 26, 2002, that the company's PureVision product infringes a patent owned by Wesley Jessen Corporation, a subsidiary of CIBA. The Court ordered that the company discontinue the manufacture and sale of its PureVision lens product in the U.S. This decision was affirmed by the United States Court of Appeals for the Federal Circuit on February 12, 2003. The company intends to defend itself vigorously against all claims asserted by CIBA.
The sixth related proceeding was commenced by the company on November 6, 2001, when the company filed a patent infringement lawsuit against CIBA in the U.S. District Court for the Western District of New York relative to a patent the company holds for hydrogel materials. CIBA has filed two motions for summary judgment in this action. The Court has heard argument on one motion and has reserved decision. The second motion has been briefed by the parties and a motion hearing date has not been established. The company intends to pursue vigorously its claims against CIBA in this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages (as of March 1, 2003), 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 |
Ronald L. Zarrella (53) |
Chairman and Chief Executive Officer since November 2001; Executive Vice President and President, General Motors North America, General Motors Corporation (1998-2001). Vice President and Group Executive, North American Vehicle Sales, Service and Marketing Group, General Motor Corporation (1994-1998). |
Gary M. Aron (60) |
Senior Vice President, Research, Development & Engineering since 2000; Vice President, Global Scientific Affairs, Vision Care/Surgical (1998-2000). |
Alan H. Farnsworth (50) |
Senior Vice President and President, Europe, Middle East and Africa Region since June 2001; Corporate Vice President, Pharmaceuticals/Europe (2000-June 2001); Vice President, Corporate Development (1997-2000). |
Dwain L. Hahs (50) |
Senior Vice President, Global Supply Chain Management since 2000; Senior Vice President and President, Global Vision Care (November 1999-October 2000); Special Assistant to the President (October 1999-November 1999); President, Ray Ban Sun Optics, Luxottica Group SpA (June 1999-September 1999); Executive Vice President and President - Eyewear (April 1997-June 1999). |
John M. Loughlin (52) |
Senior Vice President and President Asia Region since 2000; Corporate Vice President and President, Asia Region (1999-2000); President, North Asia Division (1996-1999). |
Stephen C. McCluski (50) |
Senior Vice President and Chief Financial Officer since 1995. |
David R. Nachbar (40) |
Senior Vice President, Human Resources since October 2002; Senior Vice President, Human Resources, The St. Paul Companies, Inc. (1998-October 2002); Vice President, Human Resources and Chief of Staff-Asia, Citibank NA (1996-1998). |
Robert B. Stiles (53) |
Senior Vice President and General Counsel since 1997. |
Geoffrey F. Ide (49) |
Corporate Vice President and President, Japan since November 1999; President, Japan (March 1999-October 1999); Vice President Marketing, Vision Care, Europe, Middle East and Africa (1995-March 1999). |
Barbara M. Kelley (56) |
Corporate Vice President, Communications and Investor Relations since 2001; Corporate Vice President, Communications (1997-2001). |
Jurij Z. Kushner (52) |
Corporate Vice President, Controller since 1995. |
Gary M. Phillips (37) |
Corporate Vice President, Global Pharmaceutical since September 2002; Executive Director, Strategic Planning, Novartis Pharmaceuticals (2000); Director, Portfolio Management and Strategic Planning, Wyeth-Ayerst Pharmaceuticals (1999-2000); Managing Consultant, Pharmaceutical Strategy Practice, Towers Perrin (1997-1999). |
Angela J. Panzarella (45) |
Corporate Vice President, Global Vision Care since October 2001; Corporate Vice President, Investor Relations (1997-2001). |
Alan H. Resnick (59) |
Corporate Vice President, Treasurer since 1986. |
Kamal K. Sarbadhikari (60) |
Corporate Vice President, Global Surgical since February 2002; Vice President, Product Commercialization RD&E (2000-2002); Vice President, Engineering, Vision Care (1998-2000). |
Marie L. Smith (45) |
Corporate Vice President and Chief Information Officer since 2000; Senior Vice President, Information Technology, Kellogg Company (1999-2000); Vice President, Information Services North America, Kellogg Company (1997-1999). |
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.
PART II
ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
The section entitled "Dividends" on page 38 and the table entitled "Quarterly Stock Prices" on page 78 of the Annual Report and the section entitled "Equity Compensation Plan Information" on page 16 of the Proxy Statement are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 79 of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section entitled "Financial Review" on pages 25-45 of the Annual Report is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The section entitled "Market Risk" on pages 38-39 of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, together with the section entitled "Report of Independent Accountants" on pages 46-79 and 81 of the Annual Report, respectively, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
BAUSCH & LOMB INCORPORATED
Information with respect to directors is included in the Proxy Statement on pages 4-6 and such information is incorporated herein by reference. The names, ages (as of March 1, 2003), positions and offices held by, and a brief account of the business experience during the past five years of each executive officer is set forth at the end of Part I of this report and is incorporated herein by reference. Additionally, the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" included in the Proxy Statement on page 9 is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation", "Report of the Committee on Management", "Compensation Tables" and "Defined Benefit Retirement Plans", the second and fourth through sixth paragraphs of the section entitled "Board of Directors", the graph entitled "Comparison of Five-Year Cumulative Total Shareholder Return" and the third through the sixth paragraphs of the section entitled "Related Transactions, Employment Contracts and Termination of Employment and Change in Control Arrangements" included in the Proxy Statement on pages 9-12, 13-15, 18, 2, 17 and 19 respectively, are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The sections entitled "Equity Compensation Plan Information" and "Security Ownership of Certain Beneficial Owners and Directors and Executive Officers" in the Proxy Statement on page16 and pages 7-8, respectively, are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The first paragraph of the section entitled "Related Transactions, Employment Contracts and Termination of Employment and Change in Control Arrangements" on pages 18-19 of the Proxy Statement is incorporated herein by reference.
ITEM 14. Controls AND procedures
Within the 90 days prior to the date of this Form 10-K, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chairman and Chief Executive Officer along with the company's Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the company's Chairman and Chief Executive Officer along with the Company's Senior Vice President and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including its consolidated subsidiaries) required to be included in the company's periodic filings with the SEC. There have been no significant changes in the company's internal controls or in other factors which could significantly affect intern al controls subsequent to the date the company completed its evaluation.
PART IV
ITEM 15. 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 Item 8 |
Page in the |
Report of Independent Accountants |
81 |
|
Consolidated Balance Sheets at December 28, 2002 and |
|
|
For the years ended December 28, 2002, December 29, 2001 |
||
Consolidated Statements of Income |
46 |
|
Consolidated Statements of Cash Flow |
48 |
|
Consolidated Statements of Changes in Shareholders' Equity |
49 |
|
Notes to Financial Statements |
50-79 |
|
2. |
Financial Statement Schedules filed herewith: |
|
Report of Independent Accountants |
|
|
For the years ended December 28, 2002, December 29, 2001 and December 30, 2000: |
||
SCHEDULE II-Valuation and Qualifying Accounts |
Page 19 |
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) |
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)-l, (10)-o through (10)-x is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(c) of this report. |
|
(c) |
REPORTS ON FORM 8-K |
On November 18, 2002, the company filed with the SEC a current report on Form 8-K, announcing that the company had entered into an Underwriting Agreement with Salomon Smith Barney Inc., Bank of America Securities, LLC, Fleet Securities, Inc. and JP Morgan Securities Inc. pursuant to which the underwriters would purchase $150,000,000 principal amount of 6.95% Senior Unsecured Notes due 2007. The Underwriting Agreement and a related Supplemental Indenture were filed with the Form 8-K. This Form 8-K also announced the filing with the SEC of a Preliminary Prospectus Supplement which supplemented the company's initial Prospectus. No financial statements were filed with the Form 8-K. |
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 21, 2003 |
By: /s/ |
Ronald L. Zarrella |
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 21, 2003 |
By: /s/ |
Ronald L. Zarrella |
Principal Financial Officer |
|
Date: March 21, 2003 |
By: /s/ |
Stephen C. McCluski |
Controller |
|
Date: March 21, 2003 |
By: /s/ |
Jurij Z. Kushner |
Directors |
|
Franklin E. Agnew |
|
Date: March 21, 2003 |
By: /s/ |
Robert B. Stiles |
I, Ronald L. Zarrella, certify that:
1. I have reviewed this annual report on Form 10-K of Bausch & Lomb Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
/s/
Ronald L. Zarrella
Chairman and Chief Executive Officer
I, Stephen C. McCluski certify that:
1. I have reviewed this annual report on Form 10-K of Bausch & Lomb Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 14, 2003
/s/
Stephen C. McCluski
Senior Vice President and Chief Financial Officer
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 27, 2003 appearing in the 2002 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 15(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.
/s/
PricewaterhouseCoopers LLP
Rochester, New York
January 27, 2003
Bausch & Lomb Incorporated
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts |
December 28, |
December 29, |
December 30, 2000 |
Balance at beginning of year |
$ 20.7 |
$ 24.9 |
$ 19.6 |
Activity for the year: |
|||
Provision charged to income |
6.2 |
5.4 |
8.0 |
Currency |
1.3 |
(0.4) |
(1.3) |
Additions resulting from acquisition activity |
|
|
|
Accounts written off |
(3.5) |
(10.1) |
(5.8) |
Recoveries on accounts previously written off |
|
|
|
Balance at end of year |
$ 25.6 |
$ 20.7 |
$24.9 |
EXHIBIT INDEX
S-K Item 601 No. |
|
(3)-a |
Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (3)-a to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 1-4105, and incorporated herein by reference). |
(3)-b |
Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (3)-b to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). |
(3)-c |
Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (3)-c to the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). |
(3)-d |
By-Laws of Bausch & Lomb Incorporated, as amended, effective October 26, 1998 (filed as Exhibit (3)-a to the company's Form 10-Q for the quarter ended September 26, 1998, File No. 1-4105, and incorporated herein by reference). |
(4)-a |
See Exhibit (3)-a. |
(4)-b |
See Exhibit (3)-b. |
(4)-c |
See Exhibit (3)-c. |
(4)-d |
Form of Indenture, dated as of September 1, 1991, between the company and Citibank, N.A., as Trustee, with respect to the company's Medium-Term Notes (filed as Exhibit 4-(a) to the company's Registration Statement on Form S-3, File No. 33-42858, and incorporated herein by reference). |
(4)-e |
Supplemental Indenture No. 1, dated May 13, 1998, between the Company and Citibank N.A. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, dated July 24, 1998, File No. 1-4105, and incorporated herein by reference). |
(4)-f |
Supplemental Indenture No. 2, dated as of July 29, 1998, between the Company and Citibank N.A. (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K, dated July 24, 1998, File No. 1-4105, and incorporated herein by reference). |
(4)-g |
Supplemental Indenture No. 3, dated November 21, 2002, between the Company and Citibank, N.A. (filed as Exhibit 4.8 to the Company's current report on Form 8-K, dated November 18, 2002, 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 10K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). |
(10)-d |
Amended and Restated Supplemental Retirement Income Plan III, dated December 31, 2000 filed as Exhibit (10)-d to the company's Annual Report on Form 10K for the fiscal year ended December 30, 2000, File No. 1-4105, and incorporated herein by reference). |
(10)-e |
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)-f |
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)-g |
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)-h |
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)-i |
Management Incentive Compensation Plan (filed as Exhibit (10)-b to the company's Form 10-Q for the quarter ended June 27, 1998, File No. 1-4105, and incorporated herein by reference). |
(10)-j |
Amendment to the Director Deferred Compensation Plan (filed as Exhibit (10)-v to the company's Annual Report on Form 10-K for the fiscal year ended December 25, 1999, File No. 1-4105, and incorporated herein by reference). |
(10)-k |
Amendment to the Executive Deferred Compensation Plan (filed as Exhibit (10)-w to the company's Annual Report on Form 10-K for the fiscal year ended December 25, 1999, File No. 1-4105, and incorporated herein by reference). |
(10)-l |
Separation Agreement dated October 9, 2000 between Bausch & Lomb Incorporated and Carl E. Sassano, former President and Chief Operating Officer (filed as Exhibit 10-ee to the company's Form 10-Q for the quarter ended September 23, 2000, File No. 1-4105, and incorporated herein by reference). |
(10)-m |
Master Terms and Conditions for Forward Equity Acquisition Transactions between Citibank, N.A. and Bausch & Lomb Incorporated dated as of November 22, 2000. (filed as exhibit 10-dd to the company's Form 10-K for the year ended December 30, 2000, File No. 1-4105, and incorporated herein by reference). |
(10)-n |
Three-Year Credit Agreement, dated as of January 19, 2001, among Bausch & Lomb Incorporated and the initial lenders named therein and Citibank, N.A. and Salomon Smith Barney Inc. and Fleet National Bank and the Chase Manhattan Bank. (filed as exhibit 10-ee to the company's Form 10-K for the year ended December 30, 2000, File No. 1-4105, and incorporated herein by reference). |
(10)-o |
Separation Agreement dated October 5, 2001 between Bausch & Lomb Incorporated and William M. Carpenter, former Chief Executive Officer. (filed as exhibit 10-a to the company's Form 10-Q for the quarter ended September 29, 2001, File No. 1-4105, and incorporated herein by reference). |
(10)-p |
Employment Agreement dated November 9, 2001 between Bausch & Lomb Incorporated and Ronald L. Zarrella, Chairman and Chief Executive Officer (filed as exhibit 10-z to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001, File No. 1-4105, and incorporated herein by reference). |
(10)-q |
Restricted Stock Deferred Compensation Plan, formerly known as LTI Deferred Compensation Plan, as amended and restated on January 2, 2002 (filed as exhibit 10-aa to the Company's Annual Report on Form 10-K, for the fiscal year ended December 29, 2001, file No. 1-4105, and incorporated herein by reference). |
(10)-r |
Operating Margin Enhancement Plan, dated March 25, 2002 (filed as exhibit 10-b to the Company's Form 10-Q for the quarter ended March 30, 2002, File No. 1-4105, and incorporated herein by reference). |
(10)-s |
Amended and Restated 1990 Stock Incentive Plan (filed herewith). |
(10)-t |
Amendment No. 6 to the Bausch & Lomb Incorporated 1990 Stock Incentive Plan (filed herewith). |
(10)-u |
Bausch & Lomb Incorporated Annual Incentive Compensation Plan, formerly known as the EVA Management Incentive Compensation Plan, as amended and restated on February 25, 2003 (filed herewith). |
(10)-v |
Corporate Officer Separation Plan (filed herewith). |
(10)-w |
Amended and Restated 2001 Stock Incentive Plan for Non-Officers, as approved by the Committee on Management on January 22, 2001 and amended on July 23, 2001 (filed herewith). |
(10)-x |
Amendment No. 2 to the Bausch & Lomb Incorporated 2001 Stock Incentive Plan for Non-Officers, effective January 1, 2003 (filed herewith). |
(10)-y |
Five-Year Credit Agreement, dated as of January 23, 2003 among Bausch & Lomb Incorporated and the initial lenders named therein and Salomon Smith Barney Inc. and Banc of America Securities LLC and Bank of America N.A., and Fleet National Bank and Citibank, N.A. (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 2002 Annual Report to Shareholders for the fiscal year ended December 28, 2002 (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 part of this Report on Form 10-K. |
(21) |
Subsidiaries (filed herewith). |
(23) |
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). |
(99)-a |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith). |
(99)-b |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith). |
(99)-c |
Information Concerning Forward-Looking Statements |
EXHIBIT 10-s
THE
BAUSCH & LOMB INCORPORATED
1990 STOCK INCENTIVE PLAN
AND
RELATED INFORMATION
This document constitutes part of a prospectus covering
securities that have been registered
under the Securities Act of 1933
Plan Approved April 24, 1990
Amended July 22, 1991
Amended December 9, 1996
Amended April 28, 1999
Amended October 29, 2002
INTRODUCTION
In recognition of your contributions to the Company, you have been selected to receive an award under the Plan. To enable you to better understand how the Plan works, we have attached a copy of the Plan, as well as certain supplemental information concerning the Plan and the awards made thereunder. Please read all parts of this document carefully.
As explained in Section 3 of the Plan, the Plan is administered by the Compensation Committee of the Board of Directors, which is now called the Committee on Management ("Committee"). The Committee consists of at least three directors, and is elected annually by the entire Board of Directors. In addition to its specific authority with respect to implementation of the Plan, the Committee has the general responsibility for recommending to the Board remuneration for the Chairman of the Board, the President and directors, and determining the remuneration of other corporate officers. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 and is not a qualified plan under Section 401(a) of the Internal Revenue Code.
To obtain more information about the Plan and its administrators, contact Robert B. Stiles, Senior Vice President and General Counsel, Bausch & Lomb Incorporated, One Bausch & Lomb Place, Rochester, New York 14601-0054 (telephone (585) 338-6000).
BAUSCH & LOMB INCORPORATED
1990 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to advance the interests of Bausch & Lomb Incorporated, a New York corporation (referred to herein as the "Company"), and its shareholders by providing an incentive for its directors, officers and other key employees who are primarily responsible for the management of the business to continue service with the Company and its subsidiaries. By encouraging such directors, officers and other key employees to become owners of Common Stock of the Company, the Company seeks to attract and retain people of experience, ability and training and to furnish additional incentive to directors, officers and other key employees upon whose judgment, initiative and efforts the successful conduct of its business largely depends. It is intended that this purpose will be effected through the granting of stock options and stock awards (sometimes collectively referred to as "grants")) as provided herein. It is intended that awards granted under the Plan will comply with the requirements of Code Section 162(m) as it relates to allowing for deduction by the Company of compensation paid to executives, unless otherwise designated by the Committee in accordance with Section 11 herein.
2. Effective Date. The effective date of the Plan shall be the date the Plan is approved by the shareholders of the Company.
3. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (referred to herein as the "Committee"), which shall consist of at least three directors, none of whom, while serving on such Committee, shall be, or within one year prior thereto have been, eligible to receive any grants hereunder, except as specifically authorized under Section 16 of the Plan. The Committee shall have authority to adopt rules and regulations for carrying out the Plan, select the employees to whom grants will be made, determine the number of shares to be optioned or awarded to each such employee and interpret, construe and implement the provisions of the Plan. Decisions of the Committee shall be binding on the Company and on all persons eligible to participate in the Plan.
4. Stock Subject to the Plan.
(a) Subject to adjustment as provided in Sections 9 and 10, the total number of shares of the $.08 par value Class B Stock of the Company available for grant under the Plan in each calendar year (including partial calendar years) during which the Plan is in effect shall be equal to three percent (3%) of the total number of shares of Common Stock of the Company outstanding as of the first day of each such year for which the Plan is in effect until the end of calendar year 2002, and thereafter for calendar year 2003, not more than 1,600,000 shares; provided that any shares available for grant in a particular calendar year (or partial calendar year) which are not, in fact, granted in such year shall not be added to the shares available for grant in any subsequent calendar year. In addition to the limitation set forth above with respect to the number of shares available for grant in any single calendar year, no more than three million (3,000,000) shares of Class B Stock sha ll be cumulatively available for the grant of incentive options over the life of the Plan. Shares subject to an option or award under the Plan may be authorized and unissued shares or may be "treasury shares" as defined in Section 102(a)(14) of the New York Business Corporation Law. Approval by a majority vote of the shareholders of the Company shall constitute authorization to use such Class B shares for the purposes of the Plan. Any shares subject to an option or award which for any reason expires or is terminated unexercised as to such shares may again be subject to an option or award under the Plan.
(b) Subject to adjustment as provided in Sections 9 and 10, unless and until the Committee determines that an award under the Plan to an officer who, as of the date of vesting and/or payout of the award, as applicable, is, or reasonably may be expected to be, one of the group of "covered employees," as defined in the regulations promulgated under Code Section 162(m), or any successor statute (a "Covered Employee") shall not be designed to comply with the performance-based exception from the tax deductibility limitations of Code Section 162(m) (the "Performance Based Exception"), the following rules shall apply to grants of such awards under the Plan:
(1) Stock Options: The maximum aggregate number of shares of Class B stock that may be granted in the form of options, pursuant to any award granted in any one fiscal year to any one single participant shall be five hundred thousand (500,000).
(2) Alternate Rights: The maximum aggregate number of shares of Class B stock that may be granted in the form of stock appreciation rights or accelerated rights pursuant to any award granted in any one fiscal year to any one single participant shall be five hundred thousand (500,000).
(3) Stock Grants: The maximum aggregate grant with respect to awards of Stock Grants granted in any one fiscal year to any one participant shall be two hundred fifty thousand (250,000) shares.
5. Eligible Persons. Options and awards may be granted only to directors, officers and other key employees of the Company or any subsidiary corporation of the Company. Except as expressly authorized by Section 16 of the Plan, however, no grant shall be made to a director who is not an officer or salaried employee. Further, no grant shall be made to an individual who as a result of such grant would own stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Company or a subsidiary. Stock which such individual may purchase under outstanding options, whether incentive or nonqualified, shall be treated as stock owned by such individual for purposes of this Section.
6. Stock Options. It is intended that options granted hereunder to officers and other employees of the Company shall be, at the discretion of the Committee, either "incentive options," under the provisions of Section 422A of the Internal Revenue Code of 1986 and the regulations thereunder or corresponding provisions of subsequent revenue laws and regulations in effect at the time such options are granted hereunder, or nonqualified options.
Incentive options shall be granted within ten (10) years from the effective date of the Plan and shall be evidenced by stock option agreements in such form as the Committee shall approve from time to time, which agreements shall conform with the Plan and shall contain in substance the following terms and conditions:
(a) Number of Shares. The option agreement shall specify the number of shares to which it pertains.
(b) Purchase Price. The purchase price per share of stock under each option shall be 100% of the fair market value of such stock on the day the option is granted, which shall be deemed to be the mean between the highest and lowest quoted selling prices of the Company's Common Stock on the New York Stock Exchange (or other composite quoted market) on that day (or, if there were no such sales on such day, on the next preceding day on which there were such sales). The purchase price of an option shall not be reduced during its term (except as provided in Section 9 or 10 hereof).
(c) Exercise. No option shall be exercisable after the expiration of ten (10) years from the date such option is granted.
Except as provided in Section 16 of the Plan, each such option may be exercised at such time and in such manner as specified by the Committee, which may, among other things, provide that options may become subject to exercise in installments. Except as provided in Section 15 hereof, no option may be exercised at any time unless the holder thereof is then an employee or director, as applicable, of the Company or one of its subsidiaries. An individual electing to exercise an option under the Plan shall give written notice of such election to the Company.
(d) Payment; Loans. The following provisions of this subparagraph 6(d) shall not be effective after October 29, 2002, except with respect to outstanding loans made or committed to pursuant to this provision. The purchase price of any stock purchased pursuant to the exercise of an option granted hereunder shall be payable in full on the exercise date in cash or by check or by surrender of shares of Class B Stock or Common Stock of the Company registered in the name of the optionee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so surrendered shall be deemed to have a value per share equal to the fair market value of a share of Common Stock on such date. Notwithstanding any other provision of this Plan, the exercise price of an option (or any portion thereof) shall not be payable by surrender of Class B Stock or Common Stock of the Company registered in the name of the optionee unless the shares to be so surrendered have been held for such period of time and in such manner as may be required by generally accepted accounting principles in order to prevent the exercise of such option to be deemed additional cash compensation to the optionee chargeable against the earnings of the Company.
Subject to the approval of the Committee, or of such person to whom the Committee may delegate such authority (its "designee"), the Company may loan to the optionee a sum equal to an amount which is not in excess of 100% of the purchase price of the shares so purchased, such loan to be evidenced by the execution and delivery of a promissory note; provided, however, that a designee shall have no authority to approve loans to himself. Approval of the Plan by a majority vote of the shareholders of the Company shall constitute authorization under Section 714 of the New York Business Corporation Law for any loan made hereunder (including loans made pursuant to Section 16(d) of the Plan) to any director of the Company.
Interest shall be paid on the unpaid balance of the promissory note at such times and at such rate as shall be determined by the Committee. Such promissory note shall be secured by the pledge to the Company of shares having an aggregate purchase price on the date of purchase equal to or greater than the amount of such note. An optionee shall have, as to such pledged shares, all rights of ownership including the right to vote such shares and to receive dividends paid on such shares, subject to the security interest of the Company. Such shares shall not be released by the Company from the pledge unless the proportionate amount of the note secured thereby has been repaid to the Company; provided, however, that shares subject to a pledge may be used to pay all or part of the purchase price of any other option granted hereunder or under any other stock incentive plan of the Company under the terms of which the purchase price of an option may be paid by the surrender of shares, subject to the terms and condi tions of this Plan relating to the surrender of shares in payment of the exercise price of an option. In such event, that number of the newly purchased shares equal to the shares previously pledged shall be immediately pledged as substitute security for the pre-existing debt of the optionee to the Company, and thereupon shall be subject to the provisions hereof relating to pledged shares. All notes executed hereunder shall be payable at such times and in such amounts and shall contain such other terms as shall be specified by the Committee or its designee or stated in the option agreement;
provided, however, that such terms shall conform to requirements contained in any applicable regulations which are issued by any governmental authority.
If employment of the optionee terminates for any reason other than death, disability or retirement, any unpaid balance remaining on any such promissory note shall become due and payable upon not less than three months' notice from the Company, which notice may be given at any time after such termination; provided, however, that such unpaid balance shall without notice, demand or presentation become due and payable in any event five years following the date of such termination. Notwithstanding any other provision of this section, in the event that an optionee's employment is terminated within two years after a Change in Control (as defined in Section 7(b)(3)), any unpaid balance remaining on any such promissory note shall be due and payable five years from the date of the Change in Control.
In the case of termination of employment due to disability or retirement, any unpaid balance on such promissory note shall become due and payable five years from the date of such termination. Notwithstanding the above, in the case of death, at any time, of an employee who has delivered a promissory note to the Company hereunder, any unpaid balance remaining on such note on the date of his death shall without notice, demand or presentation become due and payable one year from such date. The foregoing provisions of this subparagraph 6(d) shall not be effective after October 29, 2002, except with respect to outstanding loans made or committed to pursuant to this provision. "Retirement" as used herein shall mean early or normal retirement as defined in the Company's retirement program.
(e) Rights as a Shareholder. The individual shall have no rights as a shareholder with respect to any shares covered by his grant until the date of issuance to him of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock is issued.
(f) Maximum Value of Shares. The aggregate fair market value of stock (determined at the time the option is granted) with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year, under this or any other incentive stock option plan of the Company or its subsidiaries, shall not exceed $100,000.
(g) Non-Transferability of Rights. No grant shall be transferable by the individual except by will or the laws of descent or distribution. During the life of an individual, the grant shall be exercisable only by him or his guardian or legal representative.
Nonqualified options shall be evidenced by stock option agreements in such form as the Committee shall approve from time to time, which agreements shall indicate that the options are not incentive options, shall conform with the Plan and shall contain in substance the terms and conditions specified in parts (a), (c), (d), (e), and (g) of this Section 6, plus such other terms and conditions as the Committee shall designate. Except as provided in Section 16 of the Plan, the purchase price per share of stock under a nonqualified option shall be determined by the Committee, in its discretion; provided, however, that the purchase price shall in no case be less than the par value of the shares subject to the option. Notwithstanding the provisions of Section 6(g) the individual may also transfer grants of non-qualified stock options to members of the individual's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the individual's immed iate family and/or charitable institutions pursuant to such conditions and procedures as the Committee may establish. Any transfer permitted hereunder shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made on a gratuitous or donative basis and without consideration (other than nominal consideration).
Without in any way limiting the authority of the Committee to make grants hereunder, and in order to induce officers and other key employees to retain ownership of shares in the Company, the Committee shall have the authority (but not an obligation) to include within any option agreement a provision entitling the optionee to a further option (a "Re-load Option) in the event the optionee exercises the option evidenced by the option agreement, in whole or in part, by surrendering other shares of the Company in accordance with this Plan and the terms and conditions of the option agreement. Any such Re-load Option shall be for a number of shares equal to the number of surrendered shares, shall become exercisable in the event the purchased shares are held for a minimum period of time not less than three years, and shall be subject to such other terms and conditions as the Committee may determine.
7. Alternate Rights. The Committee may, in its discretion, award alternate rights to any officer or director who is also an employee of the Company who is subject to Section 16(b) of the Securities Exchange Act of 1934, in conjunction with incentive stock options or nonqualified stock options then being granted to him or her, or to be attached to one or more such options theretofore granted and at the time held unexercised by such officer or director, which shall entitle such individual to receive payment from the Company in accordance with the terms of the alternate right so awarded. The alternate rights set forth in Subsections (a) and (b) herein shall be subject to such terms and conditions as the Committee shall determine from time to time.
(a) Stock Appreciation Rights
(1) An alternate right granted under this Subsection (a) (an "SAR") may be made part of an option at the time of its grant or at any time thereafter up to six months prior to the expiration of the option.
(2) An SAR will entitle the holder to elect to receive, in lieu of exercising the option to which it relates, an amount (in cash or in Common Stock, or a combination thereof, all in the sole discretion of the Committee) equal to 100% of the excess of:
(A) the fair market value per share of the Company's Common Stock on the date of exercise of such SAR, multiplied by the number of shares with respect to which the SAR is being exercised, over
(B) the aggregate option price for such number of shares.
(3) An SAR will be exercisable only to the extent that it has a positive value and the option to which it relates is exercisable.
(4) Notwithstanding the foregoing, no SAR shall be exercisable (i) during the first six months after the date of its grant, or (ii) if any related stock option was exercised during the first six months after the date of its grant; provided, however, that the limitations contained in this paragraph (4) shall not apply in the event death or disability of the grantee occurs prior to the expiration of the six-month period.
(5) Upon exercise of an SAR, the option (or portion thereof) with respect to which such SAR is exercised shall be surrendered and shall not thereafter be exercisable.
(6) Exercise of an SAR will reduce the number of shares purchasable pursuant to the related option and available under the Plan to the extent of the number of shares with respect to which the SAR is exercised.
(b) Accelerated Rights.
(1) An alternate right granted under this Subsection (b) (an "Accelerated Right") may be made part of an option at the time of its grant or at any time up to six months prior to its expiration, and shall provide the optionee with the rights specified in Subsection (b) (2) below.
(2) Upon the occurrence of a Change in Control (as defined in Subsection (b) (3) below), all options to which an Accelerated Right is attached (i) shall become immediately and fully exercisable and (ii) unless the Committee shall determine otherwise at the time of grant, will entitle the holder, in lieu of exercising the option, to elect to surrender all or part of the option to the Company, provided that written notice of the election (the "Election") is given to the Company within the sixty (60) day period from and after the Change in Control (the "Election Period"). Upon making such an Election, the holder shall be entitled to receive in cash, within thirty (30) days of such Election, an amount equal to the amount by which the Change in Control Price (as defined in Subsection (b) (4) below) per share of the Company's Common Stock on the date of such Election shall exceed the exercise price per share of stock under the option, multiplied by the number of shares of sto ck granted under the option as to which the Accelerated Right shall have been exercised (such excess referred to herein as the "Aggregate Spread"); provided, however, that if the option to which the Accelerated Right is attached is held by an individual subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the Election provided for herein shall not be made prior to six months from the date of grant of the Accelerated Right. Notwithstanding any other provision of the Plan, if the end of the Election Period is within six months of the date of grant of an Accelerated Right held by an individual subject to Section 16 of the Exchange Act, the option to which the Accelerated Right is attached shall be canceled in exchange for a cash payment equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Accelerated Right.
(3) "Change in Control" shall mean (i) the acquisition by any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act (a "person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the Company's outstanding shares of stock having general voting rights, or (ii) individuals who currently constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board.
(4) In the event of a Change in Control under Subsection (b) (3) (ii) above, "Change in Control Price" shall mean the highest reported sales price of a share of Common Stock on the Composite Tape for New York Stock Exchange Listed Stocks (the "Market High") during the sixty (60) day period prior to and ending on the date of the Change in Control. If the Change of Control is the result of a transaction or series of transactions described in Subsection (b) (3) (i) above, the "Change in Control Price" shall mean the higher of (i) the highest price per share of the Common Stock paid in such transaction or series of transactions by the person having made the acquisition, and (ii) the Market High as determined above. Notwithstanding the foregoing, with respect to any incentive option, the Change in Control Price shall not exceed the market price of a share of Common Stock (to the extent required by Section 422A of the Internal Revenue Code of 1986, as amended) on the date o f surrender thereof.
8. Stock Grants. The Committee may make a grant, evidenced by such written agreement as the Committee shall, from time to time, prescribe, to any officer or other key employee consisting of a specified number of shares of the Company's Class B stock, as defined in Section 4 ("Stock Grants"). A Stock Grant shall be neither an option nor a sale. The Committee, in its discretion, shall decide whether any Stock Grant shall be subject to certain conditions and restrictions, such conditions and restrictions designated by the Committee. In such a case, appropriate written notice of the conditions and restrictions shall be set forth in the document effecting the grant ("Restricted Stock"). Restricted Stock shall be subject to, but not limited to, the following conditions and restrictions:
(a) Restricted Stock may not be sold or otherwise transferred by the employee until ownership vests at such time and in such manner as specified by the Committee.
(b) Restricted Stock may be offered for sale to the Company after all conditions are fulfilled and all restrictions lapse, and the Company shall be obligated to purchase all shares so offered at the then fair market value of the Company's Common Stock or, at the Company's sole discretion, to issue in exchange for any or all such Restricted Stock the equivalent number of shares of the Company's Common Stock.
(c) The Company may at any time exchange any shares of Class B Stock held as Restricted Stock for an equivalent number of shares of its Common Stock encumbered by the same restrictions as those shares exchanged, in which case an appropriate restrictive legend shall be affixed to the Common Stock certificate(s).
(d) If the holder of Restricted Stock shall die while still in the employ of the Company or a subsidiary prior to the lapse of restrictions, the Company shall be obligated to purchase all such shares at the then fair market value of its Common Stock if and as offered by the employee's executor.
(e) Except as provided in Section 8(d) or as otherwise determined by the Committee, all rights and title to Restricted Stock granted to a participant under the Plan shall terminate and be forfeited upon termination of the participant's employment with the Company or other failure to fulfill all conditions and restrictions applicable to such Restricted Stock.
(f) Except for the restrictions set forth herein and those specified by the Committee, a holder of Restricted Stock shall possess all the rights of a holder of the Company's Class B Stock.
All other provisions of the Plan not inconsistent with this Section shall apply to Stock Grants or the holder thereof, as appropriate, unless otherwise determined by the Committee. In addition, a grantee may elect to have a portion of the stock otherwise issuable to him or her pursuant to a Stock Grant withheld in order to satisfy applicable Federal, state and local withholding tax requirements, provided that such election complies with the following:
(1) The election shall be submitted to the Company in writing and shall be irrevocable;
(2) The value of the shares subject to the withholding election shall not exceed the maximum marginal tax rate to which the grantee is subject in connection with the Stock Grant; and
(3) If made by an individual subject to Section 16 of the Exchange Act, the election shall be made during the 10-day period beginning on the third business day following the date of release of the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date or, as an alternative in the case of a Restricted Stock Grant, at least six months prior to the lapse of the restrictions.
For purposes of the foregoing, the shares withheld shall be deemed to have a value per share equal to the fair market value of the shares on the date the tax liability arises, and any balance due on the liability shall be payable in cash or by delivery of a check.
9. Recapitalization. In the event there is any recapitalization in the form of a stock dividend, distribution, split, subdivision or combination of shares of Common stock of the Company, resulting in an increase or decrease in the number of Common shares outstanding, and there is not a corresponding recapitalization in the Class B shares, the number of Class B shares then available for grants or options under the Plan or covered by then outstanding grants or options or authorized pursuant to Section 16 of the Plan shall not change. In such a case, the award limits set forth in Section 4(b) hereof shall also not change. However, a proportionate adjustment shall be made in the number of shares of Common stock the aggregate value of which will determine the purchase price of a Class B share or which are exchangeable by the Company for a Class B share. In the event there is a recapitalization resulting in an increase or decrease in the number of Common shares outstand ing and there is a corresponding increase or decrease in the number of Class B shares outstanding, the number of Class B shares available or authorized under the Plan, the number of shares covered by outstanding grants or options and the price per share thereof in each such grant or option, and the award limits set forth in Section 4(b) of the Plan shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price.
10. Reorganization. If, pursuant to any reorganization, sale or exchange of assets, consolidation or merger, outstanding Class B Stock is or would be exchanged for other securities of the Company or of another company which is a party to such transaction, or for property, any option or other award under the Plan theretofore granted shall apply to the securities or property into which the Class B Stock covered thereby would have been changed or for which such Class B Stock would have been exchanged had such Class B Stock been outstanding at the time. In any of such events, the total number and class of shares then remaining available for issuance under the Plan (including shares reserved for outstanding options and awards and shares available for future grant of options or other award under the Plan or authorized under Section 16 hereof) shall likewise be adjusted so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by t he Plan immediately prior to such event. The award limits designated in Section 4(b) shall also be adjusted in such a case so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by the Plan immediately prior to such event.
11. Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, all awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Committee determines that such compliance is not desired with respect to any award or awards available for grant under the Plan, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any award or awards available under the Plan, the Committee may, subject to the terms of the Plan, make any adjustments it deems appropriate.
12. Performance-Based Awards. The performance measure(s) to be used for purposes of grants to Covered Employees which are designed to qualify for the Performance-Based Exception, the attainment of which may determine the degree of payout and/or vesting with respect to such awards, shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return on assets, return on equity, and return on sales;
(d) Cash flow return on investments which equals net cash flow divided by shareholders' equity;
(e) Share price, growth in share price, and total shareholder return; and
(f) Changes in Economic Value Added.
The Committee shall have the discretion to adjust the determinations of the degree of attainment of the preestablished performance goals; provided, however, that awards which are designed to qualify for the Performance-Based Exception, and which are held by a Covered Employee, may not be adjusted upward (the Committee shall retain the discretion to adjust such awards downward).
In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Code Section 162(m).
13. Transfer of Certain Shares. In addition to any other restrictions hereunder, Class B shares issued pursuant to this Plan may not be conveyed, transferred, or encumbered, except as follows:
(a) Such shares may be pledged to the Company under Section 6(d) of the Plan.
(b) Subject to any security interest of the Company in such shares as established under Section 6(d) of the Plan, such shares may be transferred by will or by the laws of descent or distribution, or may be transferred by gift to members of an employee's family or their descendants or to trusts solely for their benefit.
(c) Such shares may be offered for sale to the Company at any time by a grantee, his legal representative or transferee or such other person who acquires such shares by bequest or inheritance. The Company shall be obligated to purchase all shares so offered at the current fair market value of the Company's Common Stock on the date of such offer, provided, however, that the Company may, in its discretion, issue in exchange for any or all Class B shares so offered an equivalent number of shares of the Company's Common Stock and provided further that the portion of any loan secured by such shares under Section 6(d) has been fully paid on the date of such offer or is paid forthwith.
Upon demand by the Company at any time, the Company may exchange any shares of Class B Stock outstanding which are in the possession of the Company as collateral security for a note executed under Section 6(d) of the Plan for an equivalent number of shares of its Common Stock, which Common Stock shall be held by the Company as collateral security on the same basis as the Class B Stock was held.
14. General Restriction. Each grant shall be subject to the requirement that if at any time the Board of Directors shall determine, in its reasonable discretion, that the listing, registration or qualification of the shares subject to such grant upon any securities exchange or under any state or federal law, or that the consent or approval of any government regulatory body, is necessary or advisable as a condition of, or in connection with, such grant or the issue or purchase of shares thereunder, such grant shall be subject to the condition that such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Board of Directors.
15. Termination of Employment or Director Status.
(a) Incentive Stock Options. Incentive stock options, to the extent exercisable as of the termination date, may be exercised within three months of the date of termination unless such termination results from disability (as defined in Section 105(d) (4) of the Internal Revenue Code, as amended) or death, in which case such options shall be exercisable by the optionee or his legal representative, heir or devisee, as appropriate, within one year from the date of disability or death.
(b) Nonqualified Stock Options. Nonqualified stock options, to the extent exercisable as of the date of termination, may be exercised within three months of the date of termination unless such termination results from death, disability (as defined in Section 105(d)(4) of the Internal Revenue Code, as amended) or retirement (as defined in the Company's retirement plan or age 65), in which case such options may be exercised by the optionee, his legal representative, heir or devisee, as appropriate, within five years from the earliest of the dates of death, disability or retirement.
(c) Exercise Period Not Extended. Nothing contained in this Section 15 shall under any circumstances be interpreted as or have the effect of extending the period during which an option may be exercised beyond the terms or the expiration date provided in such option agreement or established by law or regulation. Death of an optionee subsequent to termination shall not extend such periods. Whether leave of absence shall constitute a termination of employment for purposes of the Plan shall be determined by the Committee.
(d) Work in Competing Capacity.
(1) Notwithstanding anything to the contrary contained in the Plan, the Committee, in its discretion, may include as a term of any employee's option agreement a proviso that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to the exercise of any option by the employee on or after the date six months prior to such termination1 an amount in cash or a certified or bank check equal to 100% of the excess of:
(A) the fair market value per share of the Company's Common Stock on the date of exercise of such option, multiplied by the number of shares with respect to which the option is exercised, over
(B) the aggregate option price for such number of shares.
(2) Notwithstanding anything to the contrary contained in the Plan, the Committee may, in its discretion, as a condition of any Stock Grant to an employee, provide that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to any unrestricted Stock Grant which was made or any Restricted Stock Grant which became fully vested on or after the date six months prior to such termination, the fair market value of the shares subject to such grant on the date of the grant (as to unrestricted stock) or the date of vesting (as to Restricted Stock). Such remittance shall be payable in cash or by certified or bank check or by d elivery of shares of Class B Stock or Common Stock of the Company registered in the name of the grantee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so delivered shall be deemed to have a value per share equal to the fair market value of the shares on such date.
(3) For purposes of this Section 15(d), an employee is deemed to be "engaged in a competing activity" if he or she owns, manages, operates, controls, is employed by, or otherwise engages in or assists another to engage in any activity or business which competes with any business or activity of the Company in which the employee was engaged or involved, or which, as of the time of the employee's termination, was in a state of research or development by any such business of the Company.
(4) No provision or condition implemented by the Committee under subparagraphs (1) and (2) above shall be interpreted as or deemed to constitute a waiver of, or diminish or be in lieu of, any other rights the Company may possess as a result of the employee's direct or indirect involvement with a business competing with the business of the Company.
(5) Notwithstanding the foregoing, a provision or condition implemented by the Committee under subparagraph (1) or (2) above shall become null and void, and therefore automatically shall be deemed waived by the Company, upon a Change in Control (as defined in Section 7(b)(3) of this Plan), and the Committee shall incorporate such a waiver into any provision or condition implemented under subparagraph (1) or (2) above.
16. Director Stock Options.
(a) Each director of the Company who is not an employee of the Company or any subsidiary shall, on the fourth Tuesday of July following the director's election at the annual meeting of shareholders (commencing with July 1990)and on the fourth Tuesday of each July thereafter during such director's term, automatically be granted nonqualified options to purchase Class B Stock at a purchase price per share determined in accordance with Subsection 6(b) of the Plan. The number of shares subject to each such option shall be equal to (i) two times the average of all compensation paid to non-employee directors, divided by (ii) the fair market value per share of the Company's Common Stock on the date of grant. The average of non-employee director compensation shall be determined by dividing the number of non-employee directors who were eligible for director stock options throughout the entire twelve (12) month period ending on the date of the Annual Meeting of the Shareholders o f the Company preceding the grant (the "Calculation Year") into the aggregate compensation paid or payable (including compensation which is deferred) to all such directors with respect to services rendered to the Company as directors during the Calculation Year. A director's stock option granted hereunder shall be fully vested on the date of grant.
(b) Transition grants of nonqualified options shall automatically be made to non-employee directors who are not up for election at the 1990 annual meeting of shareholders. The transition grants shall be made at the times and shall be based upon the formula set forth in Section 16(a) for the number of years remaining in such director's term following the 1990 shareholder meeting. A transition grant made hereunder shall be fully vested upon the date of grant.
(c) The grants to directors provided for in this Section 16 shall in all respects supersede, and be in lieu of, any automatic grants to directors which would otherwise be made pursuant to the Company's 1987 Stock Incentive Plan, it being intended that the only options to be granted to directors shall be made pursuant to this Plan. Approval of this Plan by a majority vote of the shareholders of the Company shall constitute approval by the shareholders of the cessation of future grants to directors under the 1987 Stock Incentive Plan.
(d) Automatic director stock option grants shall only be made if, as of each date of grant, the director (i) is not an employee of the Company or any subsidiary, and (ii) has served on the Board of Directors continuously since the commencement of his term.
(e) A director may, upon the exercise of director stock options, request that the Company loan to him a sum equal to an amount which is not in excess of 100% of the exercise price of the shares so purchased, and the loan shall be made to the director, and shall be subject to the terms and conditions set forth in Section 6(d) of the Plan, except that "retirement" shall be as defined in the Company's policy for directors. No member of the Committee shall participate in the approval of loans to himself.
(f) Director stock options, as grants to directors of the Company who are subject to Section 16(b) of the Exchange Act, shall automatically include Accelerated Rights as provided for in Subsection 7(b) of the Plan.
(g) In the event that the number of shares of the Company's Class B Stock available for future grant under the Plan is insufficient to make all automatic grants required to be made on such date, then all non-employee directors entitled to a grant on such date shall share ratably in the number of options on shares of the Company's Class B Stock available for grant under the Plan.
(h) Except as expressly provided in this Section 16, director stock options shall be subject to the terms and conditions of Section 6 for nonqualified stock options and in accordance with the Plan.
17. Definitions. Any terms or provisions used herein which are defined in Sections 83, 421, 422A or 425 of the Internal Revenue Code of 1986 or the regulations thereunder or corresponding provisions of subsequent laws and regulations in effect at the time grants or options are made hereunder shall have the meanings as therein defined.
18. Amendment of the Plan. The Plan may at any time be terminated, modified, or amended by a majority vote of the outstanding shares of the Company having general voting power or, to the extent authorized or permitted by applicable law, rule or regulation, by the Board of Directors of the Company or the Committee.
19. Duration of the Plan. The Plan shall remain in effect until all shares subject to, or which may become subject to, the Plan shall have been conveyed pursuant to the provisions of the Plan.
Exhibit 10-t
AMENDMENT NO. 6
TO
THE BAUSCH & LOMB INCORPORATED
1990 STOCK INCENTIVE PLAN
THIS AMENDMENT NO. 6 (this "Amendment") to The Bausch & Lomb Incorporated 1990 Stock Incentive Plan (the "1990 Plan") is dated as of February 25, 2003, and effective as set forth herein.
WHEREAS, the Committee on Management of the Board of Directors (the "Committee") of Bausch & Lomb Incorporated (the "Company") amended the Plan, effective October 29, 2002 to limit the number of shares of the stock of the company available for issuance under the Plan, and desires further that effective as of the same date, the number of shares available for issuance under the Plan as Stock Grants and other "full value" awards be limited to 100,000; and
WHEREAS, the Committee has determined that it is in the best interests of the Company to seek shareholder approval for a new omnibus stock incentive plan for the employees and non-employee directors of the Company, and in accordance therewith, the Bausch & Lomb 2003 Long Term Incentive Plan (the "2003 Plan") is being submitted to shareholders for approval at the 2003 Annual Meeting of the shareholders of the Company; and
WHEREAS, the Committee has determined that upon approval of the 2003 Plan, all new equity incentive awards of the Company shall be made under the 2003 Plan, and not under the 1990 Plan; and
WHEREAS, it is the intent of the Committee that all prior awards under the 1990 Plan remain intact, in accordance with their terms.
THEREFORE, in furtherance of the foregoing, the 1990 Plan hereby is amended as follows in accordance with Section 15 thereof:
Section 4 "Stock Subject to the Plan" is amended by adding new subparagraphs (c) and (d) as follows:
(c) Effective October 29, 2002, the number of shares "subject to" or "available for" grant following the foregoing effective date under this Plan as Stock Grants, shall be limited to 100,000, provided that the foregoing provision shall not affect the status, condition or terms of any grant or award made hereunder prior to October 29, 2002.
(d) Effective upon approval by the shareholders of the Company of the Bausch & Lomb 2003 Long Term Incentive Plan, and the availability of shares for grant or award thereunder, there shall be no further shares "subject to" or "available for" grant of any award under this Plan, provided that the foregoing provision shall not affect the status, condition or terms of any prior grant or award made hereunder.
All other terms and conditions of the Plan, and any agreement made thereunder, shall remain in full force and effect.
IN WITNESS WHEREOF, pursuant to a resolution of the Committee, dated
February 25, 2003, the foregoing amendment hereby is approved.
BAUSCH & LOMB INCORPORATED
By: ______________________________
David R. Nachbar
Senior Vice President, Human Resources
Exhibit 10-u
Amended and Restated as of
February 25, 2003
Bausch & Lomb Incorporated
ANNUAL INCENTIVE COMPENSATION PLAN
I. Introduction.
The Bausch & Lomb Incorporated Annual Incentive Compensation Plan (the "Plan") is established to create effective incentives for managers of Bausch & Lomb Incorporated (the "Company") to set and achieve objectives that are designed to enhance business performance and increase shareholder value. 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 and are selected to participate in the Plan are eligible to participate in the Plan ("Participants").
III. Definitions. Capitalized terms not otherwise defined when used in this Plan shall have the following meanings.
A. "Approved Incentive Award" or "Bonus". An Approved Incentive Award or Bonus is the incentive which has been approved in accordance with this Plan to be paid by the Company to the Participant.
B. "Bonus Pool". shall have the meaning set forth in Section VI.A.1.
C. "Committee". means the Committee on Management of the Company's Board of Directors.
D. "Performance Management Process (PMP) objectives". PMP objectives are team or individual performance measures which are established in accordance with guidelines issued by the Corporate Senior Vice President - Human Resources, and approved by the immediate manager of the individual or team to whom the measure applies and that person's immediate manager, as further defined in Section IV B hereof.
E. "Operating Unit Objective". An Operating Unit Objective is a performance target for one or more of the Company's geographic regional businesses (e.g. Americas; Asia; Europe, Middle East and Africa) or functional centers (Research Development & Engineering; Global Supply Chain), which is established early in a Plan Year with approval from the relevant Operating Unit head, the Corporate Senior Vice President-Human Resources, the Senior Vice President and Chief Financial Officer and the Chief Executive Officer, as further defined in Article IV B hereof.
F. "Plan Year" means each one year period coincident with a fiscal year of the Company.
G. "Standard Incentive Funding". is the Bonus Pool funding at Standard Incentive percentage for all Participants in a particular group or Operating Unit. A standard incentive percentage has been established by job band and is applied to eligible base salary earnings to determine the appropriate funding.
H. "stretch goal". Defined in Article V.
I. "target goal". Defined in Article V.
J. "threshold goal". Defined in Article V.
K. "Total Company Objective". A Total Company Objective is a performance target set for the Company as a whole, which is established early in a Plan Year with approval by the Committee, as further defined in Article IV B hereof.
IV. Performance Measurement.
A. Each Plan Year, the Company and each Operating Unit and eligible Participant will set objectives in accordance with this Plan. These will be applied for Incentive Plan purposes either to fund a Bonus Pool (as to Total Company and Operating Unit Objectives) or to allocate a Bonus Pool among Participants.
B. Total Company, Operating Unit and PMP Objectives will be set early in the Plan Year in which performance is to occur. Total Company performance will be evaluated based on Total Company Objectives which are set with approval from the Committee. Operating Unit Objectives for commercial business units shall be based on objective identifiable measures of business performance, including, for example, sales and operating earnings, return on assets/equity and cash flow. Operating Unit Objectives for units other than commercial business units (e.g., RD&E, Global Supply Chain) shall be based on deliverables required to meet annual plan and longer term objectives, including, for example, cost containment, cost improvement, product launch, product quality and cash flow goals. All Operating Unit Objectives shall be approved by the relevant Operating Unit head as well as the Senior Vice President- Human Resources, Senior Vice President and Chief Financial Officer, and the Chief Executive Officer.
Company and Operating Unit Objectives will be assigned a weighting for Bonus Pool funding purposes. (Bonus Pool funding is described further under Section VI of this Plan). The weighting of Company and Operating Unit Objectives will be approved by the Committee at the time Company Objectives are approved. 2003 Annual Incentive Plan weightings for Bonus Pool Funding are set forth in Appendix B hereto.
PMP objectives will be team or individual measures which will, where possible, impact the Operating Unit Objectives and ultimately the Total Company Objectives. PMP objectives shall be set in accordance with guidelines issued by the Senior Vice President-Human Resources, and shall be approved by the immediate manager of the individual or team to whom the measure applies, and that person's immediate manager (i.e., a "one-over-one" approval).
V. Threshold, Target and Stretch Goals
All objectives (Total Company, Operating Unit, and PMP objectives where appropriate) will be set with a "target" goal, a "stretch" goal and a "threshold" goal. Achievement of the "target" goal should reflect performance which is in line with expected performance, and which supports expected Company performance. "Stretch" goals should assume performance well in excess of that required to achieve the target goal, while "threshold" goals should define a minimum level of performance warranting payment of any Bonus. "Stretch" and "threshold" goals must be approved with respect to each Objective at the same time and in the same manner that the respective Objective is approved.
VI. Bonus Calculation.
A. The amount of an individual Participant's Approved Incentive Award (or Bonus) in any Plan Year is determined as follows:
1. A Bonus Pool for Corporate Officers, Corporate Staff and for each Operating Unit will be calculated and funded based on a factor taking into account (a) Standard Incentive Funding within the Operating Unit or Staff and (b) performance against Company Objectives and, where applicable, Operating Unit Objectives. Where an Operating Unit has multiple Operating Unit Objectives, performance will be assessed based on aggregate achievement against all Objectives on a weighted average basis in accordance with guidelines established by the Corporate Senior Vice President - Human Resources.
2. The Bonus Pool which is so determined shall then be allocated among the individual participants within a group (Corporate Officers or Corporate Staff) or Operating Unit based upon achievement by the members of that group or Operating Unit against PMP objectives. The total of Annual Incentive Awards with respect to a group or Operating Unit shall not exceed the Bonus Pool for such group or Operating Unit.
3. The Approved Incentive Award is based on the extent to which the relevant Bonus Pool is funded and on an assessment of performance against PMP objectives. Assessment of performance against PMP objectives shall be in accordance with guidelines issued by the Senior Vice President, Human Resources, and shall be subject to discretionary upward or downward modification in accordance with such guidelines.
4. Where performance against Company or Operating Unit Objectives meets or exceeds the "stretch goal" established with respect to that Objective, the calculation of the funded Bonus Pool which is attributable to that Objective shall be 200% of the Standard Incentive Funding. This is the maximum extent of Bonus Pool Funding. Conversely, where performance against a Company or Operating Unit Objective meets the "threshold goal" established with respect to that Objective, the calculation of the funded Bonus Pool will start at 0% of the Standard Incentive Funding.
5. Where actual performance on a particular Objective falls between "threshold", "target" and "stretch" goals, the Bonus Pool Funding which is attributable to that Objective shall be calculated on a pro-rata basis with respect to the payouts set for achievement of goals (50%, 100%, and 200%) depending on where performance lies between such goals.
B. Bonus Pool Funding may be modified as a result of the following:
1. Performance against Company or Operating Unit Objectives may be modified by the Committee based on the Committee's overall assessment of the manner in which such performance was achieved or, with respect to Operating Unit performance, relative contribution to Total Company Performance.
2. In addition, Bonus Pool Funding for a group or Operating Unit may be modified by the Chief Executive Officer, in his sole discretion, to reflect a group's or Operating Unit's relative contribution to Total Company performance, provided that such modification shall not have the effect of increasing the total Funded Bonus Pool for the Company as a whole beyond the level approved by the Committee.
3. Any modification to the Chief Executive Officer's Approved Incentive Award shall be approved by the Committee.
C. An individual Participant's Approved Incentive Award shall be determined based upon relevant performance against PMP objectives, which will allow for allocation to the Participant of a portion of the funded Bonus Pool of such Participant's group or Operating Unit. Assessment of performance against PMP objectives shall be in accordance with guidelines issued by the Senior Vice President, Human Resources. Approved Incentive Awards may vary upward or downward against the targeted level based on evaluation of his or her performance PMP objectives. However, the total of all Bonuses within each group or Operating Unit cannot exceed 100% of the funded Bonus Pool as to such group or Operating Unit.
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 a 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 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 Corporate Senior Vice President Human Resources and normal one-over-one approval matrix.
B. Transfers.
1. Where a Participant transfers from one Operating Unit or group to another during a Plan Year, the Bonus for the Plan Year in which the transfer occurs will be based on Bonus Pool Funding as to the particular Operating Unit or group in which the Participant worked for the majority of the Plan Year, or as otherwise approved by the Corporate Senior Vice President Human Resources.
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.
2. 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. 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 Bonus will be calculated and paid in accordance with the Plan.
3. 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.
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 Bonus determined in the same manner as in Subsection VII A.
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 eligible group of employees shall not be entitled to a Bonus.
3. Where an employee is transferred into a lower band position within a Plan Year, such employee's Standard Incentive Award percentage shall be based on the band or position in which the employee spent the majority of the Plan Year.
VIII. Change of Control.
Notwithstanding any other provision of this Plan, a special incentive bonus shall be paid to Participants if there is a change in control of the Company during the Plan Year.
1. The amount of the special incentive bonus shall equal the greater of (a) the Bonus based upon "target" performance without regard to any other calculations under the Plan, prorated where applicable, through the date of termination of the Participant's employment where it is terminated involuntarily other than for good cause, or (b) the Bonus which would be payable to the Participant based on results for the full Plan Year, prorated where applicable, through the date of termination of the Participant's employment where it is terminated involuntarily other than for good cause, as applicable.
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 empl oyee 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 February 25, 2003, 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 February 25, 2003 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 membe rs 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 Commo n 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.
IX. 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) Administration. The Committee has designated the Corporate Senior Vice President Human Resources to control and manage the operation and administration of the Plan. The Corporate Senior Vice President Human Resources 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. These powers include the power to make and publish such rules and regulations as he or she may deem necessary to carry out the provisions of the Plan.
(iii) Adjustment to Objectives. If any event occurs during a performance period which requires changes to preserve the incentive features of this Plan, the Committee may make appropriate upward or downward adjustments in the specified performance levels.
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 a 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/__________________________
David Nachbar
Corporate Senior Vice President
Human Resources
Dated: February 25, 2003
APPENDIX LIST
Appendix A STANDARD INCENTIVE PERCENTAGE TABLE
Appendix B INCENTIVE WEIGHTINGS
APPENDIX A
Amended and Restated as of February 25, 2003
STANDARD INCENTIVE PERCENTAGE
BAND/GRADE |
STANDARD INCENTIVE PERCENTAGE (AS A % OF BASE SALARY) |
NON-OFFICERS: |
|
MM/T |
15% |
EXEC |
30% |
SR. EXEC |
35% |
|
|
*Standard incentive levels will range from 40% to 100% of base salary, depending on position, as approved at the beginning of each Plan Year by the Committee on Management of the Board of Directors. |
Amended and Restated as of February 25, 2003
Appendix B
Bonus Pool Funding
|
|
|
Corporate Officers |
100% |
-- |
Corporate Staff |
100% |
-- |
Global Supply Chain: |
75% |
25% |
Global RD&E: |
75% |
25% |
Regional/Commercial: |
75% |
25% |
Global Category Groups |
75% |
25% |
Other Operating Units as approved by the CEO |
75% |
25% |
Exhibit 10-v
CORPORATE OFFICER SEPARATION PLAN
EFFECTIVE DATE APRIL 1, 2003
1.0 Background
1.1 Purpose:
The purpose of the Corporate Officer Separation Plan is to establish an equitable measure of compensation for an eligible corporate officer of the Company whose employment has been terminated.
1.2 Eligibility:
Eligible employees under this Plan are corporate officers at the corporate vice president level and above of the Company whose employment as a corporate officer is terminated for reasons other than cause, voluntary resignation, disability, early or normal retirement, or death and who have not been offered a comparable position within the Company.
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 Comparable Position:
A comparable position is defined as a position in the same geographical area with comparable salary, employee benefits perquisites, status and responsibility.
2.3 Separation Date:
The last day of full time active employment.
2.4 Termination Date:
The termination date will be the later of the separation date or the last day a severed employee receives benefits (generally, the end of cycled severance payments).
3.0 Severance Pay
3.1 Maximum Severance Pay Allowance:
A corporate officer shall be entitled to a severance pay allowance equal to current biweekly base salary each pay period for twelve (12) consecutive months 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 biweekly, based upon normal payroll procedures. Lump sum severance payments will be considered upon request.
4.0 Incentive Compensation
4.1 Annual Management Incentive Compensation
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 Long-term Incentive Program
5.1 Pursuant to the Company's Stock Incentive Plans:
a) A corporate officer who is terminated will have 90 days after the end of severance in which to exercise vested stock options, as provided in the applicable option agreement. Only options which have vested on or before the separation date may be exercised.
b) A corporate officer who is terminated has ownership rights to restricted stock to the extent it was vested at the separation date.
c) For other long-term incentive performance programs, a corporate officer who is terminated will be entitled to the award if the separation date occurs after the end of the performance period.
6.0 Outplacement Services
6.1 The Company will assist the corporate officer in the search for new employment by paying professional fees for the services incurred in the normal course of a job search of an outplacement organization in a total amount not to exceed the lower of 15% of the officer's annualized pay (base pay and prior year annual incentive plan bonus actually paid) at the time of termination or the rate established by the Company with its approved outplacement organizations. All such fees and expenses must be incurred within one year from the Separation Date to be reimbursed.
7.0 Financial Perquisites
The flexible perquisite allowance will cease on the Separation Date. The following perquisites will be continued as set forth below through the termination date:
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 made on behalf of officers for regular dues associated with a country, social, or luncheon membership held prior to the beginning of the severance period shall continue until the termination date.
7.3 Financial Counseling:
The Company shall reimburse or pay reasonable financial counseling fees on or before the termination date. Reimbursement shall not exceed 2% of base pay.
8.0 Benefits/Perquisites
Health, Life Insurance, Retirement Income, and 401(k) Plan:
Medical, Dental, Life Insurance, and Supplemental Executive Retirement Plan (SERP) benefits, if applicable, shall continue during the period of severance with benefits, and cease on the termination date, subject to the officer's election under COBRA. The officer will continue to be eligible to participate in the base salary and bonus deferral components of the Deferred Compensation Plans after the "Separation Date". Participation in the Steady Growth, Restoration, 401(k) and 401(k) Excess Plans shall cease eight weeks after the Separation 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 Required Agreements
In order to be eligible for benefits under the Plan, the corporate officer must execute the following agreements:
9.1 Non-Compete:
An agreement not to compete with or solicit employees from the Company for a period of one (1) year in the following form:
In consideration of the benefits to be provided to you and as part of your fiduciary obligations to Bausch & Lomb, you agree that for a period of one (1) year from the Separation Date you will not, directly or indirectly:
(a) Compete with any business of the Company's engaged in or under active development by Bausch & Lomb or any of its subsidiaries. For the purpose of this Agreement, the phrase "compete" shall include serving as an employee, an officer, a director, an owner, a partner or a 5% or more shareholder of any business or otherwise engaging in or assisting another to engage in any business. Without limiting the foregoing, Bausch & Lomb shall consider, on an as requested basis, modifications to your restrictions on competition where management of Bausch & Lomb believes the competitive impact on Bausch & Lomb to be minimal or otherwise manageable; or
(b) Solicit any person who is a customer of a business conducted by Bausch & Lomb to be a customer of a similar business other than a business conducted by Bausch & Lomb or any of its affiliates; or
(c) Directly or indirectly solicit or hire any employee of Bausch & Lomb or any of its subsidiaries to work for or on behalf of you or any business in which you serve as an employee, an officer, a director, an owner, a partner or a 5% or more shareholder.
9.2 Release of Claims:
An agreement releasing claims by the corporate officer against the Company and its affiliates arising out of or relating to the employment by the Company, or separation from employment, of the corporate officers, in form and substance reasonably acceptable to the Company and its counsel.
9.3 Cooperation:
An agreement to provide reasonable assistance and cooperation to the Company and its counsel in connection with matters in litigation, investigation, arbitration or other proceedings which arose from periods of the corporate officer's employment.
10.0 Administration of the Plan
10.1 Preparation of Severance Package:
Corporate Human Resources is responsible for the preparation of the executive severance package in accordance with this Plan.
10.2 Other Policies and Plans:
This Plan supersedes the officer separation plan of March 1, 2002.
10.3 Amendment:
The Company shall have the right to amend this plan from time to time, at the sole discretion of the Committee on Management of the Board of Directors of the Company.
Exhibit 10-w
THE
BAUSCH & LOMB INCORPORATED
2001 STOCK INCENTIVE PLAN FOR NON-OFFICERS
AND
RELATED INFORMATION
This document constitutes part of a prospectus covering securities that have
been registered
under the Securities Act of 1933
This document dated January 28, 2002
Plan Approved by the Committee on Management on January 22, 2001
Amended July 23, 2001
INTRODUCTION
The 2001 Stock Incentive Plan for Non-Officers (the "Plan") was adopted by the Committee on Management of Bausch & Lomb Incorporated's ("Company") Board of Directors on January 22, 2001 and was amended on July 23, 2001. Under the Plan, shares of the Company's Class B stock, units that may be converted into such stock and options to purchase such stock, and accelerated rights may be awarded to employees of the Company, other than officers. The Plan is intended to advance the interests of the Company and its shareholders by encouraging such employees to become owners of the stock of the Company. Through the Plan, the Company seeks to attract and retain people of experience, ability and training and to furnish additional incentive to employees upon whose judgment, initiative and efforts the successful conduct of its business depends.
In recognition of your contributions to the Company, you have been selected to receive an award under the Plan. To enable you to better understand how the Plan works, we have attached a copy of the Plan, as well as certain supplemental information concerning the Plan and the awards made thereunder. Please read all parts of this document carefully.
As explained in Section 3 of the Plan, the Plan is administered by the Compensation Committee of the Board of Directors, which is now called the Committee on Management ("Committee"). The Committee consists of at least three directors, and is elected annually by the entire Board of Directors. In addition to its specific authority with respect to implementation of the Plan, the Committee has the general responsibility for recommending to the Board remuneration for the Chairman of the Board, the President and directors, and determining the remuneration of other corporate officers. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 and is not a qualified plan under Section 401(a) of the Internal Revenue Code.
To obtain more information about the Plan and its administrators, contact the Bausch & Lomb Corporate Benefits Department, Bausch & Lomb Incorporated, One Bausch & Lomb Place, Rochester, New York 14604 (telephone (716) 338-6004).
BAUSCH & LOMB INCORPORATED
2001 STOCK INCENTIVE PLAN FOR NON-OFFICERS
1. Purpose. The purpose of this 2001 Stock Incentive Plan for Non-Officers (the "Plan") is to advance the interests of Bausch & Lomb Incorporated, a New York corporation (referred to herein as the "Company"), and its shareholders by providing an incentive for employees, other than officers, who continue service with the Company and its subsidiaries. By encouraging such employees to become owners of Common Stock of the Company, the Company seeks to attract and retain people of experience, ability and training and to furnish additional incentive to employees upon whose judgment, initiative and efforts the successful conduct of its business depends. It is intended that this purpose will be effected through the granting of stock options, stock awards and stock right units (sometimes collectively referred to as "grants") as provided herein. The term "grant" or "grants" is used herein to describe, collectively, stock options, stock award s and stock unit rights awarded hereunder.
2. Effective Date. The effective date of the Plan shall be January 22, 2001.
3. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (referred to herein as the "Committee"). The Committee shall have authority to adopt rules and regulations for carrying out the Plan, select the employees or classes of employees to whom grants will be made, and determine the number of shares to be optioned or awarded to such employees. In furtherance of the foregoing, the Committee shall have the authority to grant to senior management of the Company the right to select individual employees within a class of employees approved by the Committee to whom grants may be made, with the amount and other terms of such awards being determined by such senior management within a range set by the Committee, and pursuant to such other terms as are consistent with this Plan. In addition, the Committee shall have the authority to interpret, construe and implement the provisions of the Plan. Decisio ns of the Committee shall be binding on the Company and on all persons eligible to participate in the Plan.
4. Stock Subject to the Plan. Subject to adjustment as provided in Sections 9 and 10, the total number of shares of the Common Stock and/or $.08 par value Class B Stock of the Company available for grant under the Plan in each calendar year (including partial calendar years) during which the Plan is in effect shall be equal to two percent (2%) of the total number of shares of Common Stock of the Company outstanding as of the first day of each such year for which the Plan is in effect; provided that any shares available for grant in a particular calendar year (or partial calendar year) which are not, in fact, granted in such year shall not be added to the shares available for grant in any subsequent calendar year. Shares subject to a grant under the Plan may be authorized and unissued shares or may be "treasury shares" as defined in Section 102(a)(14) of the New York Business Corporation Law. Any shares subject to a grant which for any reason expires or is terminated un exercised as to such shares may again be subject to a grant under the Plan. References to shares "subject to" or "available for" a grant shall include, without limitation, shares of the Company's Common Stock issuable pursuant to the maturing of a grant, at the time of such grant, even if the issuance date may be as of a later time.
5. Eligible Persons. Grants may be made only to employees of the Company or any subsidiary corporation of the Company who are neither officers nor directors of the Company, including individuals meeting the foregoing description who may be eligible persons under the Company's 1990 Stock Incentive Plan. However, no grant shall be made to an individual who as a result of such grant would own stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Company or a subsidiary. Stock which such individual may purchase under outstanding options, whether incentive or nonqualified, shall be treated as stock owned by such individual for purposes of this Section.
6. Stock Options. It is intended that options granted hereunder to employees of the Company shall be nonqualified options.
Options shall be evidenced by stock option agreements in such form as the Committee shall approve from time to time, which agreements shall conform with the Plan and shall contain in substance the following terms and conditions:
(a) Number of Shares. The option agreement shall specify the number of shares to which it pertains.
(b) Purchase Price. The purchase price per share of stock under each option shall be 100% of the fair market value of such stock on the day the option is granted, which shall be deemed to be the mean between the highest and lowest quoted selling prices of the Company's Common Stock on the New York Stock Exchange (or other composite quoted market) on that day (or, if there were no such sales on such day, on the next preceding day on which there were such sales).
(c) Exercise. No option shall be exercisable after the expiration of ten (10) years from the date such option is granted.
Each such option may be exercised at such time and in such manner as specified by the Committee, which may, among other things, provide that options may become subject to exercise in installments. Except as provided in Section 13 hereof, no option may be exercised at any time unless the holder thereof is then an employee of the Company or one of its subsidiaries. An individual electing to exercise an option under the Plan shall give written notice of such election to the Company.
(d) Payment.
(i) Cash; Surrender of Shares. The purchase price of any stock purchased pursuant to the exercise of an option granted hereunder shall be payable in full on the exercise date in cash or by check or by surrender of shares of Class B Stock or Common Stock of the Company registered in the name of the optionee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so surrendered shall be deemed to have a value per share equal to the fair market value of a share of Common Stock on such date. Notwithstanding any other provision of this Plan, the exercise price of an option (or any portion thereof) shall not be payable by surrender of Class B Stock or Common Stock of the Company registered in the name of the optionee unless the shares to be so surrendered have been held for such period of time and in such manner as may be required by generally accepted accou nting principles in order to prevent the exercise of such option to be deemed additional cash compensation to the optionee chargeable against the earnings of the Company.
(ii) Loans. Subject to the prior approval of the Committee, or of such person to whom the Committee may delegate such authority (its "designee"), the Company may loan to the optionee a sum equal to an amount which is not in excess of 100% of the purchase price of the shares so purchased, such loan to be evidenced by the execution and delivery of a promissory note; provided, however, that a designee shall have no authority to approve loans to himself.
Interest shall be paid on the unpaid balance of the promissory note at such times and at such rate as shall be determined by the Committee. Such promissory note shall be secured by the pledge to the Company of shares having an aggregate purchase price on the date of purchase equal to or greater than the amount of such note. An optionee shall have, as to such pledged shares, all rights of ownership including the right to vote such shares and to receive dividends paid on such shares, subject to the security interest of the Company. Such shares shall not be released by the Company from the pledge unless the proportionate amount of the note secured thereby has been repaid to the Company; provided, however, that shares subject to a pledge may be used to pay all or part of the purchase price of any other option granted hereunder or under any other stock incentive plan of the Company under the terms of which the purchase price of an option may be paid by the surrender of shares, subject to the terms and condi tions of this Plan relating to the surrender of shares in payment of the exercise price of an option. In such event, that number of the newly purchased shares equal to the shares previously pledged shall be immediately pledged as substitute security for the pre-existing debt of the optionee to the Company, and thereupon shall be subject to the provisions hereof relating to pledged shares. All notes executed hereunder shall be payable at such times and in such amounts and shall contain such other terms as shall be specified by the Committee or its designee or stated in the option agreement; provided, however, that such terms shall conform to requirements contained in any applicable regulations which are issued by any governmental authority.
If employment of the optionee terminates for any reason other than death, disability or retirement, any unpaid balance remaining on any such promissory note shall become due and payable upon not less than three months' notice from the Company, which notice may be given at any time after such termination; provided, however, that such unpaid balance shall without notice, demand or presentation become due and payable in any event five years following the date of such termination. Notwithstanding any other provision of this section, in the event that an optionee's employment is terminated within two years after a Change in Control (as defined in Section 7(c)), any unpaid balance remaining on any such promissory note shall be due and payable five years from the date of the Change in Control.
In the case of termination of employment due to disability or retirement, any unpaid balance on such promissory note shall become due and payable five years from the date of such termination. Notwithstanding the above, in the case of death, at any time, of an employee who has delivered a promissory note to the Company hereunder, any unpaid balance remaining on such note on the date of his death shall without notice, demand or presentation become due and payable one year from such date. "Retirement" as used herein shall mean early or normal retirement as defined in the Company's retirement program.
(e) Rights as a Shareholder. The individual shall have no rights as a shareholder with respect to any shares covered by his grant until the date of issuance to him of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock is issued.
(f) Non-Transferability of Rights. No grant shall be transferable by the individual except by will or the laws of descent or distribution, or to members of the individual's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the individual's immediate family and/or charitable institutions pursuant to such conditions and procedures as the Committee may establish. Any transfer permitted hereunder shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made on a gratuitous or donative basis and without consideration (other than nominal consideration). During the life of an individual, the grant shall be exercisable only by him or his guardian or legal representative.
(g) Without in any way limiting the authority of the Committee to make grants hereunder, and in order to induce employees to retain ownership of shares in the Company, the Committee shall have the authority (but not an obligation) to include within any option agreement a provision entitling the optionee to a further option (a "Re-load Option) in the event the optionee exercises the option evidenced by the option agreement, in whole or in part, by surrendering other shares of the Company in accordance with this Plan and the terms and conditions of the option agreement. Any such Re-load Option shall be for a number of shares equal to the number of surrendered shares, shall become exercisable in the event the purchased shares are held for a minimum period of time not less than three years, and shall be subject to such other terms and conditions as the Committee may determine.
7. Accelerated Rights.
(a) The Committee may, in its discretion, award alternate rights under this Section 7 (an "Accelerated Right") as part of an option at the time of its grant or at any time up to six months prior to its expiration, and shall provide the optionee with the rights specified in Section 7(b) below.
(b) Upon the occurrence of a Change in Control (as defined in Section 7(c) below), all options to which an Accelerated Right is attached (i) shall become immediately and fully exercisable and (ii) unless the Committee shall determine otherwise at the time of grant, will entitle the holder, in lieu of exercising the option, to elect to surrender all or part of the option to the Company, provided that written notice of the election (the "Election") is given to the Company within the sixty (60) day period from and after the Change in Control (the "Election Period"). Upon making such an Election, the holder shall be entitled to receive in cash, within thirty (30) days of such Election, an amount equal to the amount by which the Change in Control Price (as defined in Section (b) (4) below) per share of the Company's Common Stock on the date of such Election shall exceed the exercise price per share of stock under the option, multiplied by the number of shares of stock granted under the option as to which the Accelerated Right shall have been exercised (such excess referred to herein as the "Aggregate Spread"); provided, however, that if the option to which the Accelerated Right is attached is held by an individual subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the Election provided for herein shall not be made prior to six months from the date of grant of the Accelerated Right. Notwithstanding any other provision of the Plan, if the end of the Election Period is within six months of the date of grant of an Accelerated Right held by an individual subject to Section 16 of the Exchange Act, the option to which the Accelerated Right is attached shall be canceled in exchange for a cash payment equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Accelerated Right.
(c) For purposes of this Plan, "Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) 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: (1) 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), (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained b y the Company or any corporation controlled by the Company, or (4) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of paragraph iii below are satisfied; or
(ii) individuals who, as of January 22, 2001, constitute the Board of Directors of the Company (the "Board" and, as of January 22, 2001, 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 January 22, 2001 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
(iii) 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, (A) 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 shar e exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) 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
approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securit ies, as the case may be, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority
(d) In the event of a Change in Control under Section 7(c)(ii) above, "Change in Control Price" shall mean the highest reported sales price of a share of Common Stock on the Composite Tape for New York Stock Exchange Listed Stocks (the "Market High") during the sixty (60) day period prior to and ending on the date of the Change in Control. If the Change of Control is the result of a transaction or series of transactions described in Section 7(c)(i), (iii), or (iv) above, the "Change in Control Price" shall mean the higher of (i) the highest price per share of the Common Stock paid in such transaction or series of transactions by the person having made the acquisition, and (ii) the Market High as determined above.
8. Stock Grants. The Committee may make a grant, evidenced by such written agreement as the Committee shall, from time to time, prescribe, to any employee consisting of a specified number of shares of the Company's Class B stock, as defined in Section 4 ("Stock Grants"). A Stock Grant shall be neither an option nor a sale. The Committee, in its discretion, shall decide whether any Stock Grant shall be subject to certain conditions and restrictions, such conditions and restrictions designated by the Committee. In such a case, appropriate written notice of the conditions and restrictions shall be set forth in the document effecting the grant ("Restricted Stock"). Restricted Stock shall be subject to, but not limited to, the following conditions and restrictions:
(a) Restricted Stock may not be sold or otherwise transferred by the employee until ownership vests at such time and in such manner as specified by the Committee.
(b) Restricted Stock may be offered for sale to the Company after all conditions are fulfilled and all restrictions lapse, and the Company shall be obligated to purchase all shares so offered at the then fair market value of the Company's Common Stock or, at the Company's sole discretion, to issue in exchange for any or all such Restricted Stock the equivalent number of shares of the Company's Common Stock.
(c) The Company may at any time exchange any shares of Class B Stock held as Restricted Stock for an equivalent number of shares of its Common Stock encumbered by the same restrictions as those shares exchanged, in which case an appropriate restrictive legend shall be affixed to the Common Stock certificate(s).
(d) If the holder of Restricted Stock shall die while still in the employ of the Company or a subsidiary prior to the lapse of restrictions, the Company shall be obligated to purchase all such shares at the then fair market value of its Common Stock if and as offered by the employee's executor.
(e) Except as provided in Section 8(d) or as otherwise determined by the Committee, all rights and title to Restricted Stock granted to a participant under the Plan shall terminate and be forfeited upon termination of the participant's employment with the Company or other failure to fulfill all conditions and restrictions applicable to such Restricted Stock.
(f) Except for the restrictions set forth herein and those specified by the Committee, a holder of Restricted Stock shall possess all the rights of a holder of the Company's Class B Stock.
All other provisions of the Plan not inconsistent with this Section shall apply to Stock Grants or the holder thereof, as appropriate, unless otherwise determined by the Committee. In addition, a grantee may elect to have a portion of the stock otherwise issuable to him or her pursuant to a Stock Grant withheld in order to satisfy applicable Federal, state and local withholding tax requirements, provided that such election complies with the following:
(1) The election shall be submitted to the Company in writing and shall be irrevocable; and
(2) The value of the shares subject to the withholding election shall not exceed the maximum marginal tax rate to which the grantee is subject in connection with the Stock Grant;
For purposes of the foregoing, the shares withheld shall be deemed to have a value per share equal to the fair market value of the shares on the date the tax liability arises, and any balance due on the liability shall be payable in cash or by delivery of a check.
8A. Stock Right Units. The Committee may make a grant, evidenced by such written agreement as the Committee shall, from time to time, prescribe, to any employee consisting of a specified number of units which shall be convertible into shares of the Company's common stock, as defined in Section 4 ("Stock Unit Right"). A Stock Right Unit shall be neither an option, a stock grant nor a sale. A Stock Right Unit shall be the Company's commitment to issue indicated shares of the Company's common stock to employee upon satisfaction of the conditions to maturity which are set forth in the Agreement covering such Stock Right Unit. The Committee, in its discretion, shall set, with respect to any Stock Right Unit certain conditions and restrictions on the maturity of the Stock Right Unit, which shall be set forth in the document effecting the unit grant. Stock Right Units shall be subject to, but not limited to, the following conditions and restrictions:
(a) Stock Right Units may not be sold or otherwise transferred by the employee.
(b) If the holder of a Stock Right Unit shall die while still in the employ of the Company or a subsidiary prior to its maturity, the Stock Right Unit shall be deemed to have matured and the Company has the obligation to purchase all shares issuable upon such maturity at the then fair market value of its common stock if and as offered by the employee's executor.
(c) Except as provided in Section 8A(b) or as otherwise determined by the Committee, all rights to a Stock Right Unit shall terminate and be forfeited upon termination of the participant's employment with the Company or other failure to fulfill all conditions and restrictions applicable to such Stock Right Unit.
(d) The Committee may provide and the Agreement under which Stock Right Units are granted may provide that the holder of a Stock Right Unit shall be entitled to payments by the Company of dividend equivalents, which payments shall be at the time of and equal to the amount of dividends that would be paid on the stock issuable pursuant to such Stock Right Unit had such stock been issued at the time of the Stock Right Unit.
(e) Except for rights, conditions and restrictions set forth herein and those specified by the Committee, a holder of a Stock Right Unit shall not possess any rights of a holder of the Company's Class B or common stock.
All other provisions of this Plan not inconsistent with this Section shall apply to Stock Right Units or the holder thereof, as appropriate, unless otherwise determined by the Committee. In addition, a grantee may elect, upon maturity of Stock Right Unit to have a portion of the stock otherwise issuable to him or her pursuant to a Stock Right Unit withheld in order to satisfy applicable federal, state and local withholding tax requirements, provided that such election complies with the following:
(1) The election shall be submitted to the Company in writing and shall be irrevocable; and
(2) The value of the shares subject to the withholding election shall not exceed the maximum marginal tax rate to which the grantee is subject in connection with the receipt of stock pursuant to the exercise of the unit(s);
For purposes of the foregoing, the shares withheld shall be deemed to have a value per share equal to the fair market value of the shares on the date the tax liability arises, and any balance due on the liability shall be payable in cash or by delivery of a check."
9. Recapitalization. In the event there is any recapitalization in the form of a stock dividend, distribution, split, subdivision or combination of shares of Common stock of the Company, resulting in an increase or decrease in the number of Common shares outstanding, and there is not a corresponding recapitalization in the Class B shares, the number of Class B shares then available for grants or options under the Plan or covered by then outstanding grants or options shall not change. In such a case, the award limits set forth in Section 4(b) hereof shall also not change. However, a proportionate adjustment shall be made in the number of shares of Common stock the aggregate value of which will determine the purchase price of a Class B share or which are exchangeable by the Company for a Class B share. In the event there is a recapitalization resulting in an increase or decrease in the number of Common shares outstanding and there is a corresponding increase or decrease i n the number of Class B shares outstanding, the number of Class B shares available or authorized under the Plan, the number of shares covered by outstanding grants or options and the price per share thereof in each such grant or option, and the award limits set forth in Section 4(b) of the Plan shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price.
10. Reorganization. If, pursuant to any reorganization, sale or exchange of assets, consolidation or merger, outstanding Class B Stock is or would be exchanged for other securities of the Company or of another company which is a party to such transaction, or for property, any option or other award under the Plan theretofore granted shall apply to the securities or property into which the Class B Stock covered thereby would have been changed or for which such Class B Stock would have been exchanged had such Class B Stock been outstanding at the time. In any of such events, the total number and class of shares then remaining available for issuance under the Plan (including shares reserved for outstanding options and awards and shares available for future grant of options or other award under the Plan) shall likewise be adjusted so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by the Plan immediately prior to such event. The awa rd limits designated in Section 4(b) shall also be adjusted in such a case so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by the Plan immediately prior to such event.
11. Transfer of Certain Shares. In addition to any other restrictions hereunder, Class B shares issued pursuant to this Plan may not be conveyed, transferred, or encumbered, except as follows:
(a) Such shares may be pledged to the Company under Section 6(d) of the Plan.
(b) Subject to any security interest of the Company in such shares as established under Section 6(d) of the Plan, such shares may be transferred by will or by the laws of descent or distribution, or may be transferred by gift to members of an employee's family or their descendants or to trusts solely for their benefit.
(c) Such shares may be offered for sale to the Company at any time by a grantee, his legal representative or transferee or such other person who acquires such shares by bequest or inheritance. The Company shall be obligated to purchase all shares so offered at the current fair market value of the Company's Common Stock on the date of such offer, provided, however, that the Company may, in its discretion, issue in exchange for any or all Class B shares so offered an equivalent number of shares of the Company's Common Stock and provided further that the portion of any loan secured by such shares under Section 6(d) has been fully paid on the date of such offer or is paid forthwith.
Upon demand by the Company at any time, the Company may exchange any shares of Class B Stock outstanding which are in the possession of the Company as collateral security for a note executed under Section 6(d) of the Plan for an equivalent number of shares of its Common Stock, which Common Stock shall be held by the Company as collateral security on the same basis as the Class B Stock was held.
12. General Restriction. Each grant shall be subject to the requirement that if at any time the Board of Directors shall determine, in its reasonable discretion, that the listing, registration or qualification of the shares subject to such grant upon any securities exchange or under any state or federal law, or that the consent or approval of any government regulatory body, is necessary or advisable as a condition of, or in connection with, such grant or the issue or purchase of shares thereunder, such grant shall be subject to the condition that such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Board of Directors.
13. Termination of Employment Status.
(a) Stock options, to the extent exercisable as of the date of termination, may be exercised within three months of the date of termination unless such termination results from death, disability (as defined in Section 105(d)(4) of the Internal Revenue Code, as amended) or retirement (as defined in the Company's retirement plan or age 65), in which case such options may be exercised by the optionee, his legal representative, heir or devisee, as appropriate, within five years from the earliest of the dates of death, disability or retirement.
(b) Nothing contained in this Section 13 shall under any circumstances be interpreted as or have the effect of extending the period during which an option may be exercised beyond the terms or the expiration date provided in such option agreement or established by law or regulation. Death of an optionee subsequent to termination shall not extend such periods. Whether leave of absence shall constitute a termination of employment for purposes of the Plan shall be determined by the Committee.
(c) Work in Competing Capacity.
(1) Notwithstanding anything to the contrary contained in the Plan, the Committee, in its discretion, may include as a term of any employee's option agreement a proviso that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to the exercise of any option by the employee on or after the date six months prior to such termination1 an amount in cash or a certified or bank check equal to 100% of the excess of:
(A) the fair market value per share of the Company's Common Stock on the date of exercise of such option, multiplied by the number of shares with respect to which the option is exercised, over
(B) the aggregate option price for such number of shares.
(2) Notwithstanding anything to the contrary contained in the Plan, the Committee may, in its discretion, as a condition of any Stock Grant or Stock Right Unit granted to an employee, provide that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to (i) any unrestricted Stock Grant which was made, (ii) any Restricted Stock Grant which became fully vested on or after the date six months prior to such termination, or (iii) any Stock Right Unit which matured on or after the date six months prior to such termination, the fair market value of the shares subject to such grant on the date of the grant (as to unrestricted stock) or the date of vesting (as to Restricted Stock) or the date of maturity (as to Stock Right Units). Such remittance shall be payable in cash or by certified or bank check or by delivery of shares of Class B Stock or Common Stock of the Company registered in the name of the grantee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so delivered shall be deemed to have a value per share equal to the fair market value of the shares on such date.
(3) For purposes of this Section 13(c), an employee is deemed to be "engaged in a competing activity" if he or she owns, manages, operates, controls, is employed by, or otherwise engages in or assists another to engage in any activity or business which competes with any business or activity of the Company in which the employee was engaged or involved, or which, as of the time of the employee's termination, was in a state of research or development by any such business of the Company.
(4) No provision or condition implemented by the Committee under subparagraphs (1) and (2) above shall be interpreted as or deemed to constitute a waiver of, or diminish or be in lieu of, any other rights the Company may possess as a result of the employee's direct or indirect involvement with a business competing with the business of the Company.
(5) Notwithstanding the foregoing, a provision or condition implemented by the Committee under subparagraph (1) or (2) above shall become null and void, and therefore automatically shall be deemed waived by the Company, upon a Change in Control (as defined in Section 7(c) of this Plan), and the Committee shall incorporate such a waiver into any provision or condition implemented under subparagraph (1) or (2) above.
14. Definitions. Any terms or provisions used herein which are defined in Sections 83, 421, 422A or 425 of the Internal Revenue Code of 1986, as amended, or the regulations thereunder or corresponding provisions of subsequent laws and regulations in effect at the time grants or options are made hereunder shall have the meanings as therein defined.
15. Amendment of the Plan. The Plan may at any time be terminated, modified, or amended by the Board of Directors of the Company or the Committee.
16. Duration of the Plan. The Plan shall remain in effect until all shares subject to, or which may become subject to, the Plan shall have been conveyed pursuant to the provisions of the Plan.
Exhibit 10-x
AMENDMENT NO. 2
TO
THE BAUSCH & LOMB INCORPORATED
2001 STOCK INCENTIVE PLAN
FOR
NON-OFFICERS
THIS AMENDMENT NO. 2 (this "Amendment") to The Bausch & Lomb Incorporated 2001 Stock Incentive Plan for Non-Officers (the "2001 Plan") is effective January 1, 2003.
WHEREAS, the Committee on Management of the Board of Directors (the "Committee") of Bausch & Lomb Incorporated (the "Company") have determined that it is in the best interests of the Company to seek shareholder approval for a new omnibus stock incentive plan for the employees and non-employee directors of the Company, and in accordance therewith, the Bausch & Lomb 2003 Long Term Incentive Plan (the "2003 Plan") is being submitted to shareholders for approval at the 2003 Annual Meeting of the shareholders of the Company; and
WHEREAS, no awards have been made under the 2001 Plan since January 1, 2003; and
WHEREAS, the Committee has determined that all new equity incentive awards of the Company shall be made under the 2003 Plan, and not under the 2001 Plan; and
WHEREAS, it is the intent of the Committee that all prior awards under the 2001 Plan remain intact, in accordance with their terms.
THEREFORE, in furtherance of the foregoing, the 2001 Plan hereby is amended as follows in accordance with Section 15 thereof:
Section 4 "Stock Subject to the Plan" is amended by identifying the current text thereof as subparagraph (a), and adding a new subparagraph (b) as follows:
(b) Effective January 1, 2003, there shall be no further shares "subject to" or "available for" grant under this Plan, provided that the foregoing provision shall not affect the status, condition or terms of any prior grant or award made hereunder.
All other terms and conditions of the Plan, and any agreement made thereunder, shall remain in full force and effect.
IN WITNESS WHEREOF, pursuant to a resolution of the Committee, dated February 25, 2003, the foregoing amendment hereby is approved, with the effective date of January 1, 2003.
BAUSCH & LOMB INCORPORATED
By: ______________________________
David R. Nachbar
Senior Vice President, Human Resources
Exhibit 10-y
FIVE YEAR CREDIT AGREEMENT
Dated as of January 23, 2003
BAUSCH & LOMB INCORPORATED, a New York corporation (the "Borrower"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") and issuers of letters of credit ("Initial Issuing Banks") listed on the signature pages hereof, SALOMON SMITH BARNEY INC. and BANC OF AMERICA SECURITIES LLC, as joint lead arrangers and joint bookrunning managers, BANK OF AMERICA, N.A., as syndication agent, FLEET NATIONAL BANK, as documentation agent, and CITIBANK, N.A. ("Citibank"), as administrative agent (the "Agent") for the Lenders (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Advance" means an advance by a Lender to the Borrower pursuant to Article II, and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Advance).
"Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.
"Agent's Account" means the account of the Agent maintained by the Agent at Citibank with its office at 388 Greenwich Street, New York, New York 10013, Account No. 36852248, Attention: Bank Loan Syndications.
"Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating |
Applicable Margin for |
Applicable Margin for |
Level 1 BBB+ or Baa1 |
|
|
Level 2 Lower than Level 1 but at least BBB or Baa2 |
|
|
Level 3 Lower than Level 2 but at least BBB- and Baa3 |
|
|
Level 4 Lower than Level 3 but at least BBB- or Baa3 |
|
|
Level 5 Lower than Level 4 but at least BB+ and Ba1 |
|
|
Level 6 Lower than Level 5 but at least BB and Ba2 |
|
|
Level 7 Lower than Level 6 |
|
|
"Applicable Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating |
Applicable |
Level 1 BBB+ or Baa1 |
|
Level 2 Lower than Level 1 but at least BBB or Baa2 |
|
Level 3 Lower than Level 2 but at least BBB- and Baa3 |
|
Level 4 Lower than Level 3 but at least BBB- or Baa3 |
|
Level 5 Lower than Level 4 but at least BB+ and Ba1 |
|
Level 6 Lower than Level 5 but at least BB and Ba2 |
|
Level 7 Lower than Level 6 |
|
"Applicable Utilization Fee" means (a) as of any date prior to the Commitment Hold Date that the aggregate principal amount of the Advances exceeds 25% of the Revolving Credit Commitments, and (b) as of any date on and after to the Commitment Hold Date that the aggregate principal amount of the Advances exceeds 50% of the Revolving Credit Commitments, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating |
Applicable |
Applicable |
Level 1 BBB+ or Baa1 |
|
|
Level 2 Lower than Level 1 but at least BBB or Baa2 |
|
|
Level 3 Lower than Level 2 but at least BBB- and Baa3 |
|
|
Level 4 Lower than Level 3 but at least BBB- or Baa3 |
|
|
Level 5 Lower than Level 4 but at least BB+ and Ba1 |
|
|
Level 6 Lower than Level 5 but at least BB and Ba2 |
|
|
Level 7 Lower than Level 6 |
|
|
"Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit C hereto.
"Available Amount" of any Letter of Credit means the maximum amount available to be drawn under such Letter of Credit (assuming compliance at such time with all conditions to drawing).
"Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:
(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per annum, plus (ii) the rate obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certif icate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including (among other liabilities) three-month U.S. dollar non-personal time deposits in the United States, plus (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank in the United States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i).
"Borrowing" means a borrowing consisting of Advances of the same Type made on the same day by the Lenders.
"Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.
"Commitment" means a Revolving Credit Commitment or a Letter of Credit Commitment.
"Commitment Hold Date" means the date upon which the aggregate Revolving Credit Commitments are reduced to $250,000,000 or less pursuant to Section 2.05.
"Consolidated" refers to the consolidation of accounts in accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (g) all net obligations of such Person in respect of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered), primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss or (4) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.
"Debt for Borrowed Money" of any Person means all items that, in accordance with GAAP, would be classified as notes payable, long term debt or current portion of long term debt on a Consolidated balance sheet of such Person.
"Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section 3.01(b).
"Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.
"EBITDA" means, for any period, net income (or net loss) plus, to the extent deducted in calculating net income (or net loss) for such period, the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense, (e) other non-cash non-recurring charges associated with (x) write-offs of goodwill and intangibles in accordance with then applicable accounting standards, (y) any one-time purchase accounting adjustments for acquisitions required by then applicable accounting standards, and (z) restructuring charges of not more than $23,500,000 taken in the first quarter of 2002 and of not more than $25,500,000 taken in the third quarter of 2002 (and no other restructuring charges) and (f) extraordinary losses deducted in calculating net income less extraordinary gains added in calculating net income, in each case (unless otherwise specified) determined in accordance with GAAP for such period.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 8.07, any other Person approved by the Borrower, such approval not to be unreasonably withheld or delayed; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of opera tions at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) appearing on Telerate Markets Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars is offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period (subject, however, to the provisions of Section 2.08) by (b) a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Letters of Credit" has the meaning specified in Section 2.03(a)(ii).
"Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements.
"Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period from the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance until the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months or if available from all Lenders, nine or twelve months, as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:
(i) the Borrower may not select any Interest Period that ends after the Termination Date;
(ii) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
"Issuing Bank" means an Initial Issuing Bank or any Eligible Assignee to which a portion of the Letter of Credit Commitment hereunder has been assigned pursuant to Section 8.07 so long as such Eligible Assignee expressly agrees in writing to perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank and notifies the Agent of its Applicable Lending Office (which information shall be recorded by the Agent in the Register), for so long as the Initial Issuing Bank or Eligible Assignee, as the case may be, shall have a Letter of Credit Commitment.
"L/C Cash Collateral Account" means an interest bearing cash collateral account to be established and maintained by the Agent if an Event of Default has occurred and is continuing, over which the Agent shall have sole dominion and control, upon terms as may be reasonably satisfactory to the Agent.
"L/C Related Documents" has the meaning specified in Section 2.07(b)(i).
"Lenders" means the Initial Lenders, each Issuing Bank and each Person that shall become a party hereto pursuant to Section 8.07.
"Letter of Credit Agreement" has the meaning specified in Section 2.03(a).
"Letter of Credit Commitment" means, with respect to the Initial Issuing Bank, the amount set forth opposite the Initial Issuing Bank's name on the signature pages hereto under the caption "Letter of Credit Commitment" or, if the Initial Issuing Bank has entered into one or more Assignment and Acceptances, the amount set forth for such Issuing Bank in the Register maintained by the Agent pursuant to Section 8.07(d) as such Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05.
"Letter of Credit Facility" means, at any time, an amount equal to the lesser of (a) the aggregate amount of the Issuing Banks' Letter of Credit Commitments at such time and (b) $35,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05.
"Letters of Credit" has the meaning specified in Section 2.01(b).
"Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.
"Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or any Lender under this Agreement or any Note or (c) the ability of the Borrower to perform its obligations under this Agreement or any Note.
"Material Subsidiary" of the Borrower means, at any time, any Subsidiary of the Borrower having (a) Consolidated assets with a value of not less than 5% of the total value of the Consolidated assets of the Borrower and it Subsidiaries or (b) Consolidated sales of not less than 5% of the Consolidated sales of the Borrower and its Subsidiaries, in each case as of the end of or from the most recently completed fiscal quarter of the Borrower.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and at least one Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.
"Net Cash Proceeds" means, with respect to any sale of any asset located in the United States or the incurrence or issuance of any Debt in the United States or the sale or issuance of any equity interests by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions and (b) the amount of taxes payable in connection with or as a result of such transaction, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person and are properly attributable to such transaction or to the asset that is the subj ect thereof.
"Note" means a promissory note of the Borrower payable to the order of any Lender, delivered pursuant to a request made under Section 2.17 in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender.
"Notice of Borrowing" has the meaning specified in Section 2.02.
"Notice of Issuance" has the meaning specified in Section 2.03.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or as to which are not being contested by appropriate proceedings with appropriate reserves: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations or bids or tenders or surety, appeal or performance bonds in the ordinary course of business; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.
"Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pro Rata Share" of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's Revolving Credit Commitment at such time (or, if the Revolving Credit Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender's Revolving Credit Commitment as in effect immediately prior to such termination) and the denominator of which is the aggregate amount of all Revolving Credit Commitments at such time (or, if the Revolving Credit Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the aggregate amount of all Revolving Credit Commitments as in effect immediately prior to such termination).
"Public Debt Rating" means, as of any date, the lowest rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Borrower. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be determined by reference to the available rating; (b) if neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee will be set in accordance with Level 7 under the definition of "Applicable Margin", "Applicable Percentage" or "Applicable Utilization Fee", as the case may be; (c) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (d) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be.
"Reference Banks" means Citibank, Bank of America, N.A. and Fleet National Bank.
"Register" has the meaning specified in Section 8.07(c).
"Required Lenders" means at any time Lenders owed, prior to the Commitment Hold Date, at least 66 2/3% and, from and after the Commitment Hold Date, a majority in interest of the then aggregate unpaid principal amount of the Advances owing to Lenders, or, if no such principal amount is then outstanding, Lenders having, prior to the Commitment Hold Date, at least 66 2/3% and, from and after the Commitment Hold Date, a majority in interest of the Revolving Credit Commitments.
"Revolving Credit Commitment" means, with respect to any Lender at any time, the amount set forth opposite such Lender's name on the signature pages hereto under the caption "Revolving Credit Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(d) as such Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.
"SPC" has the meaning specified in Section 8.07(f) hereto.
"Specified Information" has the meaning specified in Section 8.08(b).
"Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.
"Termination Date" means the earlier of January 23, 2008 and the date of termination in whole of the Commitments pursuant to Section 2.05 or 6.01.
"Unused Commitment" means, with respect to each Lender at any time, (a) such Lender's Revolving Credit Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Advances made by such Lender (in its capacity as a Lender) and outstanding at such time, plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all the Letters of Credit outstanding at such time and (B) the aggregate principal amount of all Advances made by each Issuing Bank pursuant to Section 2.03(c) that have not been ratably funded by such Lender and outstanding at such time.
"Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".
Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances and Letters of Credit. (a) The Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time such Lender's then current Unused Commitment. Each Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Revolving Credit Commitments. Within the limits of each Lender's Revolving Credit Commitment, the Borro wer may borrow under this Section 2.01(a), prepay pursuant to Section 2.10 and reborrow under this Section 2.01(a).
(b) Letters of Credit. Each Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (each, a "Letter of Credit") for the account of the Borrower from time to time on any Business Day during the period from the Effective Date until 30 days before the Termination Date in an aggregate Available Amount (i) for all Letters of Credit issued by each Issuing Bank not to exceed at any time the lesser of (x) the Letter of Credit Facility at such time and (y) each Issuing Bank's Letter of Credit Commitment at such time and (ii) for each such Letter of Credit not to exceed an amount equal to the Unused Commitments of the Lenders at such time. No Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than 10 Business Days before the Termination Date. Within the limits referred to above, the Borrower may request the issuance of Letters of Cred it under this Section 2.01(b), repay any Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(b).
SECTION 2.02 Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex, in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of s uch Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at the Agent's address referred to in Section 8.02.
(b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than twelve separate Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. Such indemnification shall be paid upon presentation to the Borrower of a reasonably detailed statement of such loss, cost or expense certified by an officer of such Lender.
(d) Unless the Agent shall have received notice from a Lender prior to the time of any Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrow ing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03 Issuance of and Drawings and Reimbursement Under Letters of Credit.
(a) Request for Issuance. (i) Each Letter of Credit shall be issued upon notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Borrower to any Issuing Bank, and such Issuing Bank shall give the Agent, prompt written notice thereof by telex, telecopier or cable. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be in writing, or telecopier, specifying therein the requested (A) date of such issuance (which shall be a Business Day), (B) Available Amount of such Letter of Credit, (C) expiration date of such Letter of Credit (which, for each Letter of Credit other than an Existing Letter of Credit, shall not be later than the earlier of (x) one year after the issuance thereof (provided that any such Letter of Credit may provide for renewal thereof for additional periods (which shall in no event extend past the date in clause (y) hereof)) and (y) 10 Business Days prior to the Termination Date), (D) name and address of the beneficiary of such Letter of Credit, (E) form of such Letter of Credit, and shall be accompanied by such customary application and agreement for letter of credit as such Issuing Bank may specify to the Borrower for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement") in form reasonably acceptable to the Borrower, (F) the documents to be presented by such beneficiary in case of any drawing thereunder and (G) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder. If the requested form of such Letter of Credit is acceptable to such Issuing Bank in its sole discretion, such Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Lett er of Credit available for the beneficiary or as otherwise agreed with the Borrower in connection with such issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern.(ii) As of the Effective Date, each of the letters of credit listed on Schedule 2.03 (the "Existing Letters of Credit") shall be deemed to constitute Letters of Credit issued under this Agreement.
(b) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Share of the maximum amount available to be drawn under such Letter of Credit. The Borrower hereby agrees to each such participation. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Agent, for the account of such Issuing Bank, such Lender's Pro Rata Share of each drawing made under a Letter of Credit funded by such Issuing Bank and not reimbursed by the Borrower on the date made, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obl igation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Credit Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(c) Drawing and Reimbursement. The payment by an Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by any such Issuing Bank of an Advance, which shall be a Base Rate Advance, in the amount of such draft. The Issuing Bank shall give prompt notice of each drawing under any Letter of Credit issued by it to the Borrower and the Agent. Upon written demand by the Agent, each Lender shall pay to the Agent such Lender's Pro Rata Share of such outstanding Advance, by making available for the account of its Applicable Lending Office to the Agent for the account of such Issuing Bank, by deposit to the Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Advance to be funded by such Lender. Promptly after receipt thereof, the Agent shall transfer such funds to such Issuing Bank. Each Lender agrees to fund its Pro Rata Share of an outstanding Advance o n (i) the Business Day on which demand therefor is made by such Issuing Bank, provided that notice of such demand is given not later than 11:00 A.M. (New York City time) on such Business Day, or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. If and to the extent that any Lender shall not have so made the amount of such Advance available to the Agent, such Lender agrees to pay to the Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by any such Issuing Bank until the date such amount is paid to the Agent, at the Federal Funds Rate for its account or the account of such Issuing Bank, as applicable. If such Lender shall pay to the Agent such amount for the account of any such Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute an Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstand ing principal amount of the Advance made by such Issuing Bank shall be reduced by such amount on such Business Day.
(d) Letter of Credit Reports. Each Issuing Bank shall furnish (A) to the Agent on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit during the preceding month and drawings during such month under all Letters of Credit and (B) to the Agent and each Lender on the first Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit.
(e) Failure to Make Advances. The failure of any Lender to make the Advance to be made by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Advance on such date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on such date.
SECTION 2.03 Fees. (a) Facility Fee. The Borrower agrees to pay to the Agent for the account of each Lender a facility fee on the aggregate amount of such Lender's Revolving Credit Commitment from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December, commencing March 31, 2003, and on the Termination Date.
(b) Letter of Credit Fees. (i) The Borrower shall pay to the Agent for the account of each Lender a commission on such Lender's Pro Rata Share of the average daily maximumAvailable Amount of all Letters of Credit outstanding from time to time at a rate per annum equal to the Applicable Margin for Eurocurrency Rate Advances in effect from time to time, payable in arrears quarterly on the first day of each March, June, September and December, commencing March 31, 2003, and on the Termination Date, and after the Termination Date payable upon demand.
(ii) The Borrower shall pay to each Issuing Bank a fee equal to 0.125% of the Available Amount of each Letter of Credit issued by such Issuing Bank of the date such Letter of Credit is issued per annum. In addition, the Borrower shall pay directly to each Issuing Bank for its own account the customary issuance, presentation, amendment and other process fees, and other standard costs and charges, for such Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(c) Agent's Fees. The Borrower shall pay to the Agent for its own account such fees as have been agreed between the Borrower and the Agent.
SECTION 2.05 Termination or Reduction of the Commitments. (a) Optional. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or permanently reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and provided, further, that until the Commitment Hold Date, each such reduction of the Revolving Credit Commitments shall be applied to reduce the Revolving Credit Commitments of each Initial Lender listed on Schedule II hereto (each, an "Excess Commitment Lender") and, unless otherwise spe cified in the applicable Assignment and Acceptance, each of the assignees of such Excess Commitment Lender's Revolving Credit Commitment prior to the date of such reduction by an amount equal to (x) the aggregate amount of the Net Cash Proceeds applied to such reduction multiplied by (y) the percentage set forth opposite the name of each Excess Commitment Lender on Schedule II hereto; provided that the reduction of the Revolving Credit Commitment of any assignee of an Excess Commitment Lender shall be limited to the extent of the Revolving Credit Commitment assigned to such Person by such Excess Commitment Lender.
(b) Mandatory. On the date that the Borrower or any of its Subsidiaries receives (a) Net Cash Proceeds in an amount of $50,000,000 or more from the sale of any assets located in the United States to a Person other than the Borrower or any of its Subsidiaries, (ii) Net Cash Proceeds from the incurrence of issuance of any Debt in the capital markets (other than Debt issued by Subsidiaries organized outside of the United States) or (iii) Net Cash Proceeds from the sale or issuance of any equity interests in the capital markets, the Revolving Credit Commitments shall be automatically reduced by an amount equal to such Net Cash Proceeds; provided that the Revolving Credit Commitments shall not be reduced to less than $250,000,000 pursuant to this subsection (b). Each such reduction of the Revolving Credit Commitments shall be applied to reduce the Revolving Credit Commitments of each Excess Commitment Lender and, unless otherwise specified in the applicable Assignme nt and Acceptance, each of the assignees of such Excess Commitment Lender's Revolving Credit Commitment prior to the date of such reduction by an amount equal to (x) the aggregate amount of the Net Cash Proceeds applied to such reduction multiplied by (y) the percentage set forth opposite the name of each Excess Commitment Lender on Schedule II hereto; provided that the reduction of the Revolving Credit Commitment of any assignee of an Excess Commitment Lender shall be limited to the extent of the Revolving Credit Commitment assigned to such Person by such Excess Commitment Lender.
SECTION 2.06 Repayment. (a) The Borrower shall repay to the Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Advances then outstanding.
(b) The Borrower shall, on each Business Day following receipt of notice from the Agent, prepay an aggregate principal amount of the Advances comprising part of the same Borrowings in an amount equal to the amount by which (i) the sum of the aggregate principal amount of the Advances outstanding plus the Available Amount of all Letters of Credit then outstanding exceeds (ii) the aggregate Revolving Credit Commitments on such Business Day. Each prepayment made pursuant to this subsection (b) shall be paid to the Agent for the account of the Lenders and paid to the Lenders in amounts that will result in each Lender having a ratable share of all Advances outstanding after giving effect to any reduction of the Revolving Credit Commitments pursuant to Section 5.02(b).
(c) The obligations of the Borrower under this Agreement, any Letter of Credit Agreement and any other agreement or instrument, in each case, relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrower is without prejudice to, and does not constitute a waiver of, any rights the Borrower might have or might acquire as a result of the payment by any Lender of any draft or the reimbursement by the Borrower thereof):
(i) any lack of validity or enforceability of this Agreement, any Note, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents");
(ii) any change in the manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any Issuing Bank, any Agent, any Lender or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, subject to the terms of Section 8.12;
(v) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the obligations of the Borrower in respect of the L/C Related Documents; or
(vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor, subject to the terms of Section 8.12.
SECTION 2.07 Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, if any, in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Advance plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, if any, in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above.
SECTION 2.08 Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07(a)(i) or (ii) and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $5,000,000, such Advances shall automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
(f) If Telerate Markets Page 3750 is unavailable and fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances,
(i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances,
(ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.
SECTION 2.09 Optional Conversion of Advances. The Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower.
SECTION 2.10 Optional Prepayments. The Borrower may, upon notice at least two Business Days' prior to the date of such prepayment, in the case of Eurodollar Rate Advances, and not later than 11:00 A.M. (New York City time) on the date of such prepayment, in the case of Base Rate Advances, to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lende rs in respect thereof pursuant to Section 8.04(c).
SECTION 2.11 Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or issuing or maintaining or participating in Letters of Credit (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), the n the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by an authorized officer of such Lender, shall be conclusive and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amoun ts submitted to the Borrower and the Agent by an authorized officer of such Lender shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.12 Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.
SECTION 2.13 Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off, not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees ratably (other than amounts payable pursuant to Section 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursu ant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under the Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of fees or Letter of Credit commissions shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fee or commission, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.
(e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.14 Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future withholding taxes, including levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdi ngs and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes, but excluding all other United States federal taxes other than withholding taxes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of Taxes or Other Taxes (including, without limitation, taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.14) imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of the Borrower through an account or branch outside the United States or by or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Agent, at such address, an opinion of counsel acceptable to the Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Borrower with two original Internal Revenue Service forms W-8BEN or W-8ECI, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to com pute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN or W-8ECI, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.
(h) If any Lender determines, in its sole discretion, that it has actually and finally realized, by reason of a refund, deduction or credit of any Taxes paid or reimbursed by the Borrower pursuant to subsection (a) or (c) above in respect of payments under the Credit Agreement or the Notes, a current monetary benefit that it would otherwise not have obtained, and that would result in the total payments under this Section 2.14 exceeding the amount needed to make such Lender whole, such Lender shall pay to the Borrower, with reasonable promptness following the date on which it actually realizes such benefit, an amount equal to the lesser of the amount of such benefit or the amount of such excess, in each case net of all out-of-pocket expenses in securing such refund, deduction or credit.
SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances owing to it (other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the propo rtion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.
SECTION 2.16 Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely for general corporate purposes of the Borrower and its Subsidiaries, including acquisitions.
SECTION 2.17 Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder in respect of Advances. The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Agent) to the effect that a Note is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and deliver to such Lender a Note payable to the order of such Lender in a principal amount up to the Revolving Credit Commitment of such Lender.
(b The Register maintained by the Agent pursuant to Section 8.07(d) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (I) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof.
(c) Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01 Conditions Precedent to Effectiveness of Section 2.01. Section 2.01 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied:
(a) Other than as publicly disclosed prior to the Effective Date, there shall have occurred no Material Adverse Change since December 29, 2001.
(b) There shall exist no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect other than the matters described on Schedule 3.01(b) hereto (the "Disclosed Litigation") or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby, and there shall have been no adverse change in the status, or financial effect on the Borrower or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule 3.01(b) hereto.
(c) The Lenders shall have been given such access to the management, records, books of account, contracts and properties of the Borrower and its Subsidiaries as they shall have requested.
(d) All governmental and third party consents and approvals necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the transactions contemplated hereby.
(e) The Borrower shall have notified the Agent in writing as to the proposed Effective Date.
(f) The Borrower shall have paid all accrued and invoiced fees and expenses of the Agent and the Lenders (including the accrued and invoiced fees and expenses of counsel to the Agent).
(g) On the Effective Date, the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating that:
(i) The representations and warranties contained in Section 4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes a Default.
(h) The Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Agent and (except for the Notes) in sufficient copies for each Lender:
(i) The Notes to the order of the Lenders, to the extent requested pursuant to Section 2.16.
(ii) Certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement and the Notes, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the Notes and the other documents to be delivered hereunder.
(iv) A favorable opinion of Robert B. Stiles, General Counsel for the Borrower, substantially in the form of Exhibit D hereto and as to such other matters as any Lender through the Agent may reasonably request.
(v) A favorable opinion of Shearman & Sterling, counsel for the Agent, in form and substance satisfactory to the Agent.
(vi) The Borrower shall have terminated the commitments and paid in full of the all Debt, interest, fees and other amounts outstanding under the Three Year Credit Agreement dated as of January 19, 2001 among the Borrower, the lenders parties thereto and Citibank, as agent. By execution of this Agreement, each of the Lenders that is a lender under such credit agreement hereby waives any requirement set forth in such credit agreement of prior notice of the termination of the commitments thereunder.
SECTION 3.02 Conditions Precedent to Each Borrowing and Each Letter of Credit Issuance. The obligation of each Lender to make an Advance on the occasion of each Borrowing and the obligations of any Issuing Bank to issue a Letter of Credit shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Borrowing or issuance (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or issuance such statements are true):
(i) the representations and warranties contained in Section 4.01 are correct on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or issuance and to the application of the proceeds therefrom, as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result from such Borrowing or issuance or from the application of the proceeds therefrom, that constitutes a Default;
and (b) the Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request.
SECTION 3.03 Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the date that the Borrower, by notice to the Lenders, designates as the proposed Effective Date, specifying its objection thereto. The Agent shall promptly notify the Lenders of the occurrence of the Effective Date
.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of New York.
(b) The execution, delivery and performance by the Borrower of this Agreement and the Notes to be delivered by it, and the consummation of the transactions contemplated hereby, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower's charter or by-laws or (ii) law or any contractual restriction binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Borrower of this Agreement or the Notes to be delivered by it.
(d) This Agreement has been, and each of the Notes to be delivered by it when delivered hereunder will have been, duly executed and delivered by the Borrower. This Agreement is, and each of the Notes when delivered hereunder will be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms.
(e) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 29, 2001, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of PricewaterhouseCoopers, LLP, independent public accountants, and the Consolidated balance sheet of the Borrower and its Subsidiaries as at September 28, 2002 and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the nine months then ended, duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at September 28, 2002 and said statements of income and cash flows for the nine months then ended, to year-end audit adjustments, the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Other than as publicly disclosed prior to the Effective Date, since December 29, 2001, there has been no Material Adverse Change.
(f) There is no pending or threatened action, suit, investigation, litigation or proceeding, including, without limitation, any Environmental Action, affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation) or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby, and there has been no adverse change in the status, or financial effect on the Borrower or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule 3.01(b) hereto.
(g) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.
(h) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(i) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(j) Schedule 4.01(j) is a complete and correct list of each Lien securing Debt of any Person outstanding on the date hereof the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $10,000,000 and covering any property of the Borrower or any of its Subsidiaries, and the aggregate Debt secured (or that may be secured) by each such Lien and the property covered by each such Lien is correctly described in Schedule 4.01(j).
(k) Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any governmental authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(l) Neither the Borrower nor any of its Subsidiaries is (i) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.
(m) Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all taxes required to have been filed and has paid or caused to be paid all taxes required to have been paid by it, except (i) taxes that are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books reserves where required by GAAP or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
(n) Attached hereto a Schedule 4.01(n) is a list of each Material Subsidiary of the Borrower on the date hereof.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01 Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws to the extent that the failure to do so could reasonably be expected to result in a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and enforcement, collection, execution, levy or foreclosure proceedings shall have been commenced with respect to one or more such taxes, assessments, charges, levies or claims that, either individually or in the aggregate, are material.
(c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Borrower and its Material Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and provided further that neither the Borrower nor any of its Material Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of the Borrower or such Subsidiary shall reasonably determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lenders.
(e) Visitation Rights. At any reasonable time and from time to time, permit the Agent or any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants.
(f) Keeping of Books. Keep, and cause each of its Material Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Material Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted.
(h) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer, treasurer or controller of the Borrower as having been prepared in accordance with generally accepted accounting principles and certificates of the chief financial officer, treasurer or controller of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calcul ations necessary to demonstrate compliance with Section 5.03, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP;
(ii) as soon as available and in any event within 105 days after the end of each fiscal year of the Borrower, a copy of the audited annual report for such year for the Borrower and its Subsidiaries, containing a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an opinion acceptable to the Required Lenders by PricewaterhouseCoopers, LLP or other independent public accountants acceptable to the Required Lenders, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.03, a statement of r econciliation conforming such financial statements to GAAP;
(iii) as soon as possible and in any event within five days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer, treasurer or controller of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its securityholders, and copies of all reports and registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange;
(v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(f); and
(vi) such other information respecting the Borrower or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request.
Reports required to be delivered pursuant to clauses (i), (ii) and (iv) above shall be deemed to have been delivered on the date on which such report is posted on the SEC's website at www.sec.gov, and such posting shall be deemed to satisfy the reporting requirements of clauses (i), (ii) and (iv) above; provided that the Borrower shall deliver paper copies of the certificate required by clauses (i), (ii), (iii) and (v) above to the Agent and each of the Lenders until such time as the Agent shall provide the Borrower written notice otherwise.
SECTION 5.02 Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real property or equipment acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition of such property or equipment, or Liens existing on such property or equipment at the time of its acquisition (other than any such Liens created in contemplation of such acquisition that were not incurred to finance the acquisition of such property) or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any properties of any character other than the real property or equipment being acquired, and no such extension, renewal or replacement shall extend to or cover any properties not theretofore subject to the Lien being extended, renewed or replaced, provided further that the aggregate principal amount of the indebtedness secured by the Liens referred to in this clause (ii) shall not exceed $100,000,000 at any time outstanding,
(iii) the Liens existing on the Effective Date and described on Schedule 4.01(j) hereto,
(iv) Liens arising in connection with any court action or other legal proceeding so long as no Default under Section 6.01(f) has occurred and is continuing,
(v) other Liens securing Debt in an aggregate principal amount not to exceed $25,000,000 at any time outstanding, and
(vi) the replacement, extension or renewal of any Lien permitted by clause (iii) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby.
(b) Mergers, Etc. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit any of its Material Subsidiaries to do so, except that (i) any Material Subsidiary of the Borrower may merge or consolidate with or into, or dispose of assets to, any other Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower may merge into or dispose of assets to the Borrower and (iii) the Borrower may merge with any other Person so long as the Borrower is the surviving corporation, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.
(c) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required or permitted by generally accepted accounting principles.
(d) Subsidiary Debt. Permit any of its Subsidiaries to create or suffer to exist, any Debt other than:
(i) Debt owed to the Borrower or to a wholly owned Subsidiary of the Borrower,
(ii) Subsidiary Debt for Borrowed Money existing on the Effective Date and described on Schedule 5.02(d) hereto (the "Existing Debt"), and any Debt extending the maturity of, or refunding or refinancing, in whole or in part, the Existing Debt, provided that the principal amount of such Existing Debt shall not be increased above the principal amount thereof outstanding immediately prior to such extension, refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with such extension, refunding or refinancing,
(iii) Debt secured by Liens permitted by Section 5.02(a)(ii) or (iv),
(iv) unsecured Debt incurred in the ordinary course of business aggregating for all of the Borrower's Subsidiaries not more than $100,000,000 at any one time outstanding, and
(v) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business.
(e) Change in Nature of Business. Make, or permit any of its Material Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof, taken as a whole, provided that the Borrower may expand into other lines of business in the health products industry.
(f) Restrictive Agreements. Directly or indirectly enter into, incur or permit to exist, or permit any of its Subsidiaries to enter into, incur or permit to exist, any agreement or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets or (ii) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to guarantee Debt of the Borrower or any other Subsidiary; provided that (A) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (B) the foregoing shall not apply to restrictions and conditions that could not be reasonably expected to cause a material adverse effect on the ability of the Borrower to perform any of its obligations under this Agreement, (C) the foregoing shall not apply to restrictions and conditions existing on the date hereof (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (D) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (E) clause (i) above shall not apply to restrictions or conditions imposed by any agreement relating to secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt and (F) clause (i) above shall not apply to customary provisions in leases and licenses restricting the assignment thereof.
(g) Use of Proceeds. Use, or permit any of its Subsidiaries to use, the proceeds of any Advances to purchase or carry margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System)or to extend credit to others for the purpose of purchasing or carrying margin stock.
SECTION 5.03 Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will:
(a) Leverage Ratio. Maintain a ratio of Consolidated Debt for Borrowed Money to Consolidated EBITDA of the Borrower and its Subsidiaries for the four fiscal quarters then ended of not greater than 2.75:1.0 and, from and after June 30, 2004, 2.5:1.0.
(b) Fixed Charge Coverage Ratio. Maintain a ratio of Consolidated EBITDA of the Borrower and its Subsidiaries for the four fiscal quarters then ended to interest payable on, and amortization of debt discount in respect of, all Debt for Borrowed Money during such period, by the Borrower and its Subsidiaries of not less than 4.75:1.0 and, from and after June 30, 2004, 5.0:1.0.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under this Agreement or any Note within three Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (e) or (h), 5.02 or 5.03, or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of (i) written notice thereof shall have been given to the Borrower by the Agent or any Lender and (ii) a responsible financial officer of the Borrower otherwise becomes aware of such failure; or
(d) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or notional amount of at least $25,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or
(e) The Borrower or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sou ght in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or
(f) Any judgments or orders for the payment of money in excess of $25,000,000 in the aggregate shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) other than in respect of a settlement order, there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect or (iii) the Borrower or any of its Subsidiaries shall be in default under a settlement order; or
(g) Any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
(h) (i) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 30% or more of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower shall cease for any reason to constitute a majority of the board of directors of the Borrower; or (iii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of the power to exercise , directly or indirectly, a controlling influence over the management or policies of the Borrower; or
(i) The Borrower or any of its ERISA Affiliates shall incur, or shall be reasonably likely to incur liability in excess of $25,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances (other than Advances by an Issuing Bank or a Lender pursuant to Section 2.03(c)) and of the Issuing Banks to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal B ankruptcy Code, (A) the obligation of each Lender to make Advances (other than Advances by an Issuing Bank or a Lender pursuant to Section 2.03(c)) and of the Issuing Banks to issue Letters of Credit shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.
SECTION 6.02 Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Agent may with the consent, or shall at the request, of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, (a) pay to the Agent on behalf of the Lenders in same day funds at the Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding or (b) make such other arrangements in respect of the outstanding Letters of Credit as shall be acceptable to the Required Lenders. If at any time the Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agent and the Lenders or that the total a mount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Agent, pay to the Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit, to the extent funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Banks to the extent permitted by applicable law. Promptly after all such Letters of Credit shall have expired or been fully drawn upon and all other obligations of the Borrower hereunder and under the Notes shall have been paid in full, the balance, if any, in such LC Cash Collateral Account shall be returned to the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01 Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and s uch instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02 Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Lenders for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the Lender that made any Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assignment and Acceptance entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; ( iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03 Citibank and Affiliates. With respect to its Commitment, the Advances made by it and the Note issued to it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Citibank were not the Agent and without any duty to account therefor to the Lenders.
SECTION 7.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.
SECTION 7.05 Indemnification. (a) The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons that are not Lenders, ratably according to the respective amounts of their Revolving Credit Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement (collectively, the "Indemnified Costs"), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent's gross negligence or will ful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.
(b) Each Lender severally agrees to indemnify the Issuing Banks (to the extent not promptly reimbursed by the Borrower) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any such Issuing Bank in any way relating to or arising out of this Agreement or any action taken or omitted by such Issuing Bank hereunder or in connection herewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Issuing Bank's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender agrees to reimburse any such Issuing Bank promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 8.04, to the extent that such Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrower.
(c) For purposes of this Section 7.05, the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lenders, (ii) their respective Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time and (iii) their respective Unused Commitments at such time; provided that the aggregate principal amount of Advances owing to the Issuing Banks as a result of drawings under Letters of Credit shall be considered to be owed to the Lenders ratably in accordance with their respective Revolving Credit Commitments. The failure of any Lender to reimburse the Agent or any such Issuing Bank, as the case may be, promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent or such Issuing Bank, as the case may be, as provided herein shal l not relieve any other Lender of its obligation hereunder to reimburse such Agent or Issuing Bank, as the case may be, for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse the Agent or any such Issuing Bank, as the case may be, for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 7.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes.
SECTION 7.06 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent with the consent, so long as no Event of Default shall have occurred and be continuing, of the Borrower (which consent shall not be unreasonably withheld or delayed). If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall thereupon be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
SECTION 7.07. Other Agents. Each Lender hereby acknowledges that none of the documentation agent, the syndication agent or any other Lender designated as any "Agent" (other than the Agent) on the signature pages hereof has any liability hereunder other than in its capacity as a Lender.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Revolving Credit Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, or (f) amend this Section 8.01; and provided further that (x) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note and (y) no amendment, waiver or consent of Section 8.07(f) shall, unless in writing and signed by each Lender that has granted a funding option to an SPC in addition to the Lenders required above to take such action, affect the rights or duties of s uch Lender or SPC under this Agreement or any Note; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Issuing Banks in addition to the Lenders required above to take such action, adversely affect the rights or obligations of the Issuing Banks under this Agreement.
SECTION 8.02 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Borrower, at its address at One Bausch & Lomb Place, Rochester, New York 14604, Attention: Treasurer; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at its address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan Syndications Department; or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written no tice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied, telegraphed or telexed, be effective when deposited in the mails, telecopied, delivered to the telegraph company or confirmed by telex answerback, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.
SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04 Costs and Expenses. (a) The Borrower agrees to pay upon presentation of reasonably detailed invoices all costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay upon presentation of reasonably detailed invoices all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection wi th the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Agent and each Lender in connection with the enforcement of rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or an y of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, equityholders or creditors or an Indemnified Party or any other Person, whether or not any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances. Nothing in this Section 8.04(b) shall be deemed, construed or given effect to relieve or release the Agent or any Lender from any liability for breach of contract arising from a failure by such party to perform its contractual obligations hereunder.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.07 as a result of a demand by the Borrower pursuant to Section 8.07(a), the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limita tion, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. Such indemnification shall be paid upon presentation to the Borrower or a reasonably detailed statement of such loss, cost or expense certified by an officer of such Lender.
(d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05 Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have.
SECTION 8.06 Binding Effect. This Agreement shall become effective (other than Section 2.01, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.
SECTION 8.07 Assignments and Participations. (a) Each Lender may, and if demanded by the Borrower (following a demand by such Lender pursuant to Section 2.11 or 2.14) upon at least five Business Days' notice to such Lender and the Agent will, assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment, the Advances owing to it and any Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Revolving Credit Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower after consultation with the Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from eit her the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $3,500 payable by the parties to each such assignment, provided, however, that in the case of each assignment made as a result of a demand by the Borrower, such recordation fee shall be payable by the Borrower except that no such recordation fee shall be payable in the case of an assignment made at the request of the Borrower to an Eligible Assignee that is an existing Lender, and (vii) any Lender may, without the appro val of the Borrower and the Agent, assign all or a portion of its rights to any of its Affiliates. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has r eceived a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender.
(c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Revolving Credit Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Revolving Credit Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Revolving Credit Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights or obligations under this Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Revolving Credit Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation.
(f) Each Lender may grant to a special purpose funding vehicle (an "SPC") the option to fund all or any part of any Advance that such Lender is obligated to fund under this Agreement (and upon the exercise by such SPC of such option to fund, such Lender's obligations with respect to such Advance shall be deemed satisfied to the extent of any amounts funded by such SPC); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Revolving Credit Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (iv) any such option granted to an SPC shall not constitute a commitment by such SPC to fund any Advance, (v) neither the grant nor the exercise of such option to an SPC shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including, without limitation, its obligations under Section 2.10) (vi) the SPC shall be bound by the provisions of Section 8.08 and (vii) no SPC shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, nor any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such grant of funding option, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such grant of funding option. Each party to this Agreement hereby agrees that no SPC shall be liab le for any indemnity or payment under this Agreement for which a Lender would otherwise be liable. Subject to the foregoing provisions of this clause (f), an SPC shall have all the rights of the granting Lender. An SPC may assign or participate all or a portion of its interest in any Advances to the granting Lender or to any financial institution providing liquidity or credit support to or for the account of such SPC without paying any processing fee therefor and, in connection therewith may disclose on a confidential basis any information relating to the Borrower to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancements to such SPC. In furtherance of the foregoing, each party hereto agrees (which agreements shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or jo in any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof.
(g) Any Lender may, in connection with any assignment, designation, participation or grant of funding option or proposed assignment, designation, participation or grant of funding option pursuant to this Section 8.07, disclose to the assignee, designee, participant or SPC or proposed assignee, designee, participant or SPC, any information relating to any Borrower furnished to such Lender by or on behalf of such Borrower; provided that, prior to any such disclosure, the assignee, designee, participant or SPC or proposed assignee, designee, participant or SPC shall agree to preserve the confidentiality of any Specified Information relating to any Borrower received by it from such Lender.
(h) Each Issuing Bank may assign to an Eligible Assignee its rights and obligations or any portion of the undrawn Letter of Credit Commitment at any time; provided, however, that (i) the amount of the Letter of Credit Commitment of the assigning Issuing Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $1,000,000 or an integral multiple of $1,000,000 in excess thereof, and (ii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500.
(i) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
SECTION 8.08 Limited Disclosure. (a) Notwithstanding anything to the contrary herein, the Borrower, each Lender and the Agent hereby agree that, from the commencement of discussions with respect to the facility established by this Agreement (the "Facility"), the Borrower, each Lender and the Agent (and each of their respective, and their respective Affiliates', employees, officers, directors, representatives, advisors and agents) are permitted to disclose to any and all Persons, without limitation of any kind, the structure and tax aspects (as such terms are used in Internal Revenue Code sections 6011 and 6111) of the Facility, and all materials of any kind (including opinions or other tax analyses) that are provided to the Borrower, any Lender or the Agen t related to such structure and tax aspects. In this regard, the Borrower, each Lender and the Agent acknowledge and agree that the disclosure of the structure or tax aspects of the Facility is not limited in any way by an express or implied understanding or agreement, oral or written (whether or not such understanding or agreement is legally binding). Furthermore, each of the Borrower, each Lender and the Agent acknowledges and agrees that it does not know or have reason to know that its use or disclosure of information relating to the structure or tax aspects of the Facility is limited in any other manner (such as where the Facility is claimed to be proprietary or exclusive) for the benefit of any other Person.
(b) Except as otherwise provided in this Section 8.08, neither the Agent nor any Lender may disclose to any Person any information that constitutes material non-public information regarding the Borrower or its securities for purposes of Regulation FD of the Securities and Exchange Commission or any other federal or state securities laws (it being acknowledged and agreed that the provisions of this Section 8.08 with respect to such information are reasonably necessary to comply with Regulation FD and/or such other federal and state securities laws) (such information referred to collectively herein as the "Specified Information"), except to their respective, and their respective Affiliates', officers, employees, agents, accountants, legal counsel, advisors and other representatives who have a need to know such Specified Information.
(c) The provisions of subsection (b) above shall not apply to Specified Information that is a matter of general public knowledge or that has heretofore been or is hereafter published in any source generally available to the public or that is required to be disclosed by law, regulation or judicial order, including pursuant to the tax shelter regulations under Sections 6011, 6111 and 6112 of the Internal Revenue Code or is requested by any regulatory body with jurisdiction over the Agent or any Lender, or to assignees or participants or potential assignees or participants who agree to be bound by the provisions of this Section 8.08.
(d) The provisions of this Section 8.08 supersede any confidentiality obligations of any of the Lenders or the Agent relating to the Facility under any agreements between the Borrower and such parties. The parties hereto agree that any such confidentiality obligations of any of the Lenders or the Agent shall be deemed void ab initio to the extent the same relate to the Facility.
SECTION 8.09 Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.
SECTION 8.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 8.11 Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in thi s Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
SECTION 8.12 No Liability of the Issuing Banks. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither an Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such Issuing Bank's willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, in the absence of gross negligence or willful misconduct, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the co ntrary.
SECTION 8.13 Waiver of Jury Trial. Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
BAUSCH & LOMB INCORPORATED
By &nb
sp;
Title:
CITIBANK, NA.,
as Agent
By &nb
sp;
Title:
Initial Issuing Banks
Letter of Credit Commitment
$13,761,987 BANK OF AMERICA, N.A.
By
Title:
$21,238,013 FLEET NATIONAL BANK
By
Title:
$35,000,000 Total of the Letter of Credit Commitments
Initial Lenders
Revolving Credit Commitment
$100,000,000 BANK OF AMERICA, N.A.
By
Title:
$100,000,000 CITIBANK, N.A.
By
Title:
$80,000,000 FLEET NATIONAL BANK
By
Title:
$50,000,000 KEYBANK NATIONAL ASSOCIATION
By
Title:
$30,000,000 NORTHERN TRUST COMPANY
By
Title:
$25,000,000 US BANK, N.A.
By
Title:
$15,000,000 ALLIED IRISH BANK
By
Title:
$400,000,000 Total of the Revolving Credit Commitments
SCHEDULE I
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
APPLICABLE LENDING OFFICES
Name of Initial Lender |
Domestic Lending Office |
Eurodollar Lending Office |
Allied Irish Bank |
405 Park Avenue |
405 Park Avenue |
Bank of America, N.A. |
1850 Gateway Blvd. - 5th floor |
1850 Gateway Blvd. - 5th floor |
Citibank, N.A. |
Two Penns Way |
Two Penns Way |
Fleet National Bank |
One East Avenue |
One East Avenue |
KeyBank National Association |
4910 Tideman Rd. |
4910 Tideman Rd. |
The Northern Trust Company |
50 S. LaSalle |
50 S. LaSalle |
US Bank, N.A. |
1450 Euclid Ave. 8th Floor |
1450 Euclid Ave. 8th Floor |
SCHEDULE II
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
EXCESS COMMITMENT LENDERS
Lender |
Initial Commitment |
Minimum Commitment |
% Excess Commitment |
Citibank, N.A. |
$100,000,000 |
$50,000,000 |
33.335% |
Bank of America, N.A. |
$100,000,000 |
$50,000,000 |
33.335% |
Fleet National Bank |
$80,000,000 |
$65,000,000 |
10.0% |
KeyBank National Association |
$50,000,000 |
$30,000,000 |
13.33% |
The Northern Trust Company |
$30,000,000 |
$30,000,000 |
0.0% |
US Bank, N.A. |
$25,000,000 |
$15,000,000 |
6.67% |
Allied Irish Bank |
$15,000,000 |
$10,000,000 |
3.33% |
SCHEDULE 2.03
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
EXISTING LETTERS OF CREDIT
Bank |
Term |
Amount |
LC # |
Beneficiary |
Bank of America |
4/3/02-2/1/03 |
$5,000,000 |
7409319 |
Pacific Employers |
Bank of America |
4/23/02-4/30/03 |
$8,761,987 |
7409380 |
Bank of NY |
Fleet Bank |
12/31/02-12/31/03 |
$2,900,000 |
AS1372352 |
Zurich Insurance |
Fleet Bank |
12/31/02-12/31/03 |
$12,500,441 |
AS1372331 |
Pacific Employers |
Fleet Bank |
3/5/01-11/30/04 |
$558,900 |
AS1258291 |
Suga Development |
SCHEDULE 3.01(b)
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
DISCLOSED LITIGATION
Such matters as are identified in the periodic reports of the Borrower, which are filed with the U.S. Securities and Exchange Commission.
SCHEDULE 4.01(j)
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
EXISTING LIENS
NONE
SCHEDULE 4.01(n)
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
MATERIAL SUBSIDIARIES
Stated in $000's as of December 28, 2002
|
Consolidated Subsidiary Assets |
% of Total Consolidated Assets |
Consolidated Subsidiary Sales |
% of Total Consolidated Sales |
Bausch & Lomb Pharmaceuticals Inc. |
$168,354 |
5.8% |
$123,043 |
6.8% |
BLJ Company Ltd. |
$114,242 |
3.9% |
$176,875 |
9.7% |
Groupe Chauvin |
$221,715 |
7.6% |
$55,198 |
3% |
Bausch & Lomb Ireland |
$1,209,361 |
41.6% |
$0 |
0% |
Bausch & Lomb BV |
$289,601 |
10% |
$372,200 |
20.5% |
SCHEDULE 5.02(d)
BAUSCH & LOMB INCORPORATED
FIVE YEAR CREDIT AGREEMENT
EXISTING SUBSIDIARY DEBT FOR BORROWED MONEY
Description |
Maturity Date |
Coupon Rate |
Principal Amount |
Subsidiary Debt as of 12/28/02: |
|||
Groupe Chauvin |
various |
various |
$5,500,000 |
Korea |
mo-mo |
floating |
$1,400,000 |
Total Subsidiary Debt for Borrowed Money |
$6,900,000 |
Bausch & Lomb Incorporated
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Dollar Amounts in Millions Except Per Share Data)
|
2002 |
2001
|
Income from continuing operations |
$ 72.5 |
$ 42.0 |
Sale price adjustment related to disposal of discontinued operations, net |
- |
(21.1) |
Gain on early extinguishment of debt |
- |
- |
Change in accounting principle, net |
- |
0.3 |
Net Income |
$ 72.5 |
$ 21.2 |
|
|
|
Basic Net Income Per Common Share: |
|
|
Continuing operations |
$ 1.35 |
$ 0.78 |
Sale price adjustment related to disposal of discontinued operations, net |
- |
(0.39) |
Gain on early extinguishment of debt |
- |
- |
Change in accounting principle, net |
- |
- |
Net income per common share |
$ 1.35 |
$ 0.39 |
|
|
|
Diluted Net Income Per Common Share: |
|
|
Continuing operations |
$ 1.34 |
$ 0.78 |
Sale price adjustment related to disposal of discontinued operations, net |
- |
(0.39) |
Gain on early extinguishment of debt |
- |
- |
Change in accounting principle, net |
- |
- |
Net income per common share |
$ 1.34 |
$0.39 |
|
|
|
Basic average common shares outstanding (000s) |
53,832 |
53,578 |
Dilutive effect of stock options (000s) |
165 |
137 |
Diluted average common shares outstanding (000s) |
53,997 |
53,715 |
Antidilutive outstanding stock options were excluded from the calculation of average shares outstanding. Total options excluded, in thousands, were 6,270 in 2002 and 2,946 in 2001.
Bausch & Lomb Incorporated
Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges
(Dollar Amounts In Millions)
|
December 28, 2002 |
December 29, 2001 |
Earnings from continuing operations |
|
|
Fixed charges |
54.1 |
59.1 |
Current period amortization of |
|
|
Capitalized interest |
(0.1) |
- |
Total earnings as adjusted |
$ 191.3 |
$ 144.3 |
Fixed charges: |
|
|
Portion of rents representative of the |
|
|
Total fixed charges |
$ 54.1 |
$ 59.1 |
Ratio of earnings to fixed charges |
3.5 |
2.4 |
ANNUAL REPORT / 2002
[BAUSCH & LOMB LOGO]
Page
SEEING/THE FUTURE
[TABLE OF CONTENTS]
1 |
LETTER TO SHAREHOLDERS |
6 |
STRATEGIC DISCUSSION |
25 |
FINANCIALS |
82 |
DIRECTORS AND OFFICERS |
83 |
CORPORATE INFORMATION |
Page
FINANCIAL HIGHLIGHTS
[PIE CHART]
------------------------------------------------------------------------------------------------------------
2002 Revenues by Geographic Segment
Americas |
46% |
Europe |
34% |
Asia |
20% |
------------------------------------------------------------------------------------------------------------
[PIE CHART]
------------------------------------------------------------------------------------------------------------
2002 Revenues by Product Category
Contact Lens |
29% |
Lens Care |
26% |
Pharmaceuticals |
22% |
Cataract & Vitreoretinal |
16% |
Refractive |
7% |
------------------------------------------------------------------------------------------------------------
[BAR CHART]
------------------------------------------------------------------------------------------------------------
Revenue Trends
Dollar Amounts in Millions
1998 |
1,562.4 |
1999 |
1,720.6 |
2000 |
1,718.7 |
2001 |
1,665.5 |
2002 |
1,816.7 |
------------------------------------------------------------------------------------------------------------
[BAR CHART]
------------------------------------------------------------------------------------------------------------
R&D as a Percent of Sales*
1998 |
4.9% |
1999 |
5.7% |
2000 |
7.1% |
2001 |
7.3% |
2002 |
7.1% |
*Excludes Acquired In-Process Research and Development
------------------------------------------------------------------------------------------------------------
For The Years Ended December 30, 2000, December 29, 2001 and |
Percentage |
||||
2000 |
2001 |
2002 |
2001 |
||
Business Results |
|||||
Net Sales 1 |
$1,718.7 |
$1,665.5 |
$1,816.7 |
9% |
|
Segment Earnings |
277.8 |
161.7 |
256.8 |
59% |
|
Operating Earnings - Reported |
141.9 |
86.7 |
149.7 |
73% |
|
Income from Continuing Operations |
82.0 |
42.0 |
72.5 |
73% |
|
Net Income |
83.4 |
21.2 |
72.5 |
243% |
|
Per Share: |
|||||
Continuing operations - diluted |
1.49 |
0.78 |
1.34 |
72% |
|
Net income - diluted |
1.52 |
0.39 |
1.34 |
244% |
|
Dividends declared |
1.04 |
1.04 |
0.65 |
(38%) |
|
Shareholders' equity at year end - diluted |
18.99 |
18.15 |
18.85 |
4% |
|
Capital Expenditures |
95.0 |
96.4 |
91.9 |
||
Working Capital |
899.8 |
693.7 |
455.7 |
||
Diluted Common Shares Outstanding (000's) |
54,724 |
53,715 |
53,997 |
||
Return on Average Shareholders' Equity |
7.9% |
2.1% |
7.4% |
||
Return on Invested Capital |
6.1% |
3.1% |
6.0% |
||
High/Low Stock Price |
$80.88 - $33.56 |
$54.93 - $27.20 |
$44.80 - $27.17 |
1
Prior year amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.Page
[PHOTOGRAPH]
KEY PRODUCTS AND BRANDS*
Vision Care |
Surgical |
Pharmaceuticals |
||||
Contact Lenses |
Lens Care |
Cataract & |
Refractive |
Branded/ |
OTC |
|
SofLens66 |
ReNu |
Millennium phacoemulsification and vitrectomy system |
Technolas excimer laser |
Lotemax anti- inflammatory steroid drops |
Ocuvite andOcuvite PreserVision ocular vitamins |
|
SofLens OneDay |
ReNu |
Millennium TSV 25 System for vitrectomy |
Hansatome |
Alrex steroid drops |
Opcon-A redness and itching |
|
SofLens Week |
Sensitive |
Millennium Endolase green laser |
Zyoptix vision correction |
Carteol |
Desomedine drops |
|
SofLens |
Boston |
SoFlex siliconeintraocular lenses |
Orbscan topographer |
Indocollyre anti- inflammatory drops |
||
PureVision |
Hydroview |
Zywave aberrometer |
Minims free, single- dose drops |
|||
Optima |
Akreos lenses |
Zyoptix Workstation |
Vidisic product |
|||
Boston |
PMMA |
Vitrasert implant |
||||
Mport insertion system |
||||||
AMVISC/ |
* Bausch & Lomb is a global company. Because our products include regulated drugs and medical devices, commercial availability is dependent on regulatory approvals in specific markets. Therefore, the products and brands listed may not be available in all geographic areas.
<Page>
Dear Shareholders:
I am pleased to report that 2002 was a year of improving operational execution and the beginning of the turnaround in our company. We posted solid top- and bottom-line growth with improved margins, and we are well positioned to continue that momentum into 2003.
Our contact lens business posted 13 percent growth for the year - in a market estimated to be growing in the mid-single digits. Continued acceptance of our newer technology products led to accelerating growth that far outpaced sales declines for our traditional annual replacement lens offerings. SofLens66 Toric became the most frequently prescribed toric lens in both the U.S. and Europe. We launched the lens in Japan in February and it has quickly gained acceptance in that important market as well. Our newest offering, SofLens Multi-Focal for people with presbyopia, was introduced in the U.S. in the fourth quarter to rave reviews by doctors and patients alike.
Undoubtedly our lens business could have been even stronger if not for a patent ruling that prohibited our making or selling PureVision extended wear lenses in the U.S. after August. Thanks to the efforts of Bausch & Lomb employees, we transferred production to our Waterford, Ireland facility before the end of the year, ensuring our ability to continue supplying customers outside the U.S. with this technologically superior product.
Our lens care revenues, as expected, were significantly higher than 2001 - up 12 percent in a flat to declining market. The U.S. portion of the business stabilized, returning to sales levels that mirrored consumption following a period
Bausch & Lomb 1 Annual Report 2002
of retail inventory destocking throughout 2001. And, with the launch of ReNu MultiPlus No Rub Formula solution, we recaptured market share we had lost the year before. We will continue to invest appropriately in the lens care business to maintain our leadership position.
In pharmaceuticals, revenues grew 15 percent, benefiting from our commanding lead in ocular vitamins. That's a market that grew in excess of 40 percent in the U.S. alone last year, and our products, including Ocuvite PreserVision ocular vitamins, led the way with a 70 percent share. Positive results were also posted for our proprietary and multisource drug products. We reported encouraging six-month results from the first Phase III clinical trial for diabetic macular edema (DME) using our Retisert drug delivery implant. We expect to release twelve-month data from this and the remaining Phase III trial for DME, as well as the first data from Phase III trials for posterior uveitis, in 2003. We continue to target commercialization in the U.S. for the first indication for the Retisert implant in 2004.
Our surgical businesses did not perform as robustly as the rest of our portfolio, with our cataract and vitreoretinal category down one percent and our refractive category down six percent compared to 2001. We continue working to rebuild customer confidence in our cataract and vitreoretinal category. We have a strategy in place to regain market share and return this business to growth. The recent launches of new modules for our Millennium system for vitreoretinal surgery, as well as design enhancements in our intraocular lens lines to be launched in 2003, will further demonstrate to surgeons our commitment to delivering technologically differentiated cataract and vitreoretinal products, and should reinvigorate our category performance.
In 2002, the refractive category continued to be impacted by softening economies, particularly in the U.S. and Europe. In 2003, we anticipate receiving U.S. FDA approval for treating farsighted patients using our Technolas 217 laser, as well as for our Zyoptix customized ablation (or personalized vision correction) platform. Both events should benefit the business once the economy rebounds. Superior outcomes from our Zyoptix system can put us well ahead of competing technologies, and position us for increased U.S. market penetration as older lasers are
Bausch & Lomb 2 Annual Report 2002
upgraded or replaced. Customized ablation is an important factor driving the non-U.S. portion of this business, as an increasing percentage of new lasers placed in 2002 were full-fledged Zyoptix platforms versus standard lasers. Those platforms will generate a new annuity-based business model in non-U.S. markets as patients "trade up" to customized procedures.
From a balance sheet perspective, we enter this new year in a stronger financial position. Our months of on-hand inventory continue to decline, driving strong free cash flow. We successfully raised $150 million in public debt in 2002 and in January 2003 entered into a new, larger revolving credit agreement, both events demonstrating our ample liquidity and financial health. In total, we were able to reduce our debt and minority interest obligations by nearly $183 million over the course of last year.
On my desk during 2002 was a list of three main priorities for the year: getting costs in line; tightening business processes; and establishing an organizational model within which the company could operate more effectively.
We made significant progress on the first of these by aggressively reviewing opportunities to reduce both manufacturing and operating costs and by making some hard choices. The result was a profitability improvement plan designed to yield $90 million in annualized savings by 2005 - with almost $60 million of those savings realized by 2004. But achieving more with less is not a single, cost-cutting event. It is a continuous process of always finding better, faster and more efficient ways to get results. That's the nature of staying competitive, and something we're committed to doing.
In 2002, we instituted more disciplined business processes to yield better operating plans, better business reviews and better management methodologies and metrics. We introduced a common worldwide performance system so that every Bausch & Lomb employee is aligned with a common method of assessing performance to ensure that our commitments to you are fulfilled. We made good progress toward our goal of implementing an integrated global information technology platform that
Bausch & Lomb 3 Annual Report 2002
[PHOTOGRAPH of Ronald L. Zarrella]
will make it easier and more economical for us to do business around the world. We have a global team of employees and external consultants devoted to ensuring the success of this important project.
We also established a matrix organizational model to run our company. Exiting 2001, we were organized into three commercial regions, plus centralized Supply Chain Management and Research, Development and Engineering (RD&E) organizations. In 2002, we named three global category leaders, one for each of our three main businesses - vision care, pharmaceuticals and surgical. Our commercial regional heads are accountable for the day-to-day operations of our business, including the critical interactions with customers, as well as for establishing operating plans and achieving them. The category leaders (whom you'll meet in the following pages) are charged with developing global strategy for their respective product categories and ensuring that programs and decisions within the commercial regions support that strategy.
While cost, processes and organization will always be important, I now have a new list on my desk with three new priorities: leveraging the Bausch & Lomb brand; building a more customer-focused organization; and establishing the platform for future top-line growth.
November 2003 will mark the 150th anniversary of our company. Over the past century and a half, the Bausch & Lomb name has become the strongest brand in eye care around the world, and undoubtedly one of our most valuable assets. Unfortunately, we have not taken real advantage of the power of our brand by using it consistently and effectively. Leveraging the significant strength of the Bausch & Lomb brand can deliver increased sales, market share, loyalty and - ultimately - increased shareholder value. Together with a first-class branding agency, we have dedicated a global project team to develop a master brand strategy and architecture so that the way we name products, the way we advertise, the way we sell and the way we come in contact with customers and the general public all synergistically build the Bausch & Lomb
Bausch & Lomb 4 Annual Report 2002
brand. We expect to see the first tangible outcomes from this work later this year.
One of the cultural drivers I established when I came to the company was that we should have a vigilant external focus. While I believe we have always been a customer-oriented company, we have more to do in this area. Addressing the supply chain issues that resulted in disappointed customers, particularly in the surgical business over the last couple of years, pointed that out very clearly. We need to understand our customers' expectations better, anticipate their needs and deliver on our quality promise to them - all in a way that serves them better than any of our competitors. Providing the best customer quality involves more than meeting or even exceeding regulatory standards, or even our own rigorous internal standards. It means consistently measuring ourselves and our products against the highest customer expectations - and against our competitors' performance - and then exceeding both. During 2003, we'll establish better systems for understanding and anticipating customer expectations and better met rics for assessing our performance.
Finally, this year we will focus on building the foundation to provide enhanced revenue growth for the future. While we will continue to execute our cost strategies, we will now add more focus to building a strong new product pipeline. New products will come from a variety of sources: internal research and development; in-licensing opportunities; and partnerships with third parties. Our global category leaders, together with RD&E, are charting a course - based on customer needs and competitive intelligence - to make our pipeline more robust. Our commitment is stronger than ever to raise our investment in research and development from seven percent to closer to 10 percent of sales over time while achieving the overall three-year financial targets we set in 2002 of mid- to upper-single-digit revenue growth and operating margins in the mid-teens as a percentage of sales.
We are all committed to executing the programs begun in 2002 and to accomplishing our new goals. By doing so, we will be positioning our company for the next 150 years. I look forward to reporting to you our progress toward our new priorities throughout 2003.
Sincerely,
/s/ Ronald L. Zarrella
Ronald L. Zarrella
Chairman and Chief Executive Officer
Bausch & Lomb 5 Annual Report 2002
[PHOTOGRAPH]
Bausch & Lomb 6 Annual Report 2002
[PHOTOGRAPH]
In charting the course from concept to customer at Bausch & Lomb, the quest comes from a commitment, a deeply held desire and a firm dedication to always finding a way, a new way, a better way to help people see.
Advancing our 150-year heritage of technological innovation are our employees - like those in our Research, Development and Engineering organization pictured throughout these pages - who, with insight, inspiration and intelligence combine the needs of our customers and the desires of consumers with the promise of science and the hope of technology to bring us the products that help the people of the world see better.
CONCEPT TO CUSTOMER
- Concept
- - Confirm Market Opportunity
- - Establish Feasibility
- - Develop Proof of Concept Models or Preclinical Trials
- - Develop Quality and Manufacturing Techniques
- - Complete Preclinical Testing
- - Government and Ethics Board Approvals to Begin Human Clinical Trials
- - Clinical Testing to Determine Safety and Efficacy of the Product
- - Submit All Development, Manufacturing, Quality and Clinical Information for Government Scientific Review
- - Government Scientific Review
- - Government Approval
- - Commercialization
- - Customer Feedback, Post-Marketing Surveillance and Product Enhancements
Bausch & Lomb 7 Annual Report 2002
[PHOTOGRAPH]
VISION CARE
Bausch & Lomb 8 Annual Report 2002
In vision care, our quest is to continue to increase the convenience, quality of vision and comfort of contact lens wear.
Convenient Choices
Today's contact lens wearers want more convenient products, and their desire has increased the demand for both simpler care systems and for planned replacement and disposable contact lenses.
We met those demands with inventive products including PureVision lenses, which revolutionized the continuous wear market; ReNu MultiPlus No Rub Formula solution, which made lens care quick and easy; and SofLens One Day and SofLens Comfort lenses, which offered a convenient replacement modality to meet the active lifestyles of today's contact lens wearers.
We're inventing the future now, with lens development efforts intensely focused on pioneering continuous wear programs, with the goal of introducing new products that combine the convenience of longer-term wear with ever-improving performance. And we're working to develop lens care systems that offer greater convenience to both soft and rigid gas permeable contact lens wearers.
[PHOTOGRAPH]
Bausch & Lomb 9 Annual Report 2002
Outstanding Quality of Vision
Two examples of recent success in the pursuit of technologies to enhance the quality of vision for contact lens wearers are the SofLens66 Toric lens for astigmatism and the SofLens Multi-Focal lens for middle-aged people with aging eyes - or presbyopia.
The SofLens66 Toric lens became the number one prescribed toric lens in the U.S. and Europe in 2002, recognized in this premium segment for the enhanced quality of vision and comfort it provides in a convenient replacement modality. The global market share for the lens continues to grow, especially after its introduction in Japan, the world's second largest contact lens market, in February 2002.
Introduced in the U.S. in the fourth quarter of 2002, SofLens Multi-Focal lenses have a unique design that allows seamless vision at all distances - near, intermediate and far. We will introduce the lens to markets outside the U.S. in 2003. In clinical trials, doctors and patients preferred it two-to-one to the leading bifocal contact lens. With only a tiny percentage of the current worldwide vision corrected population over 40 wearing contact lenses, there are millions of patients who could benefit from SofLens Multi-Focal lenses.
The introduction of the SofLens Multi-Focal lens is just one example of our ability to pursue strategic partnering opportunities to bring new products to market, a key component of our overall plan for growth in all of our businesses. A small specialty contact lens manufacturer recognized our abilities in low-cost cast-molding technology, our broad global presence and strong brand. They licensed this multifocal lens design to us for further development and commercialization.
The next breakthrough in contact lenses may lie in the ability to correct for more than just cylinder, sphere and astigmatism, providing the contact lens wearer with eyesight that goes beyond today's correction.
Armed with our superior knowledge of the physiology of the eye, including "higher order" optical aberrations that we gained through our extensive research and development work with customized refractive surgery, and with our strong heritage in optics, Bausch & Lomb researchers are exploring ways to apply this knowledge to improving the quality of vision for contact lens wearers.
We are also pursuing approval for our market-leading Boston rigid gas permeable contact lens material for overnight orthokeratology ("Ortho-K"). Ortho-K, or corneal reshaping, is a nonsurgical alternative for myopia management that provides improved unaided visual acuity.
[PHOTOGRAPH]
[PHOTGRAPH CAPTION:]
---------------------------------------------------------------------------------------------------------------------------
Global Strategy:
Vice President of Global Vision Care, Angela J. Panzarella, leads worldwide strategy for Bausch & Lomb's largest revenue-producing franchise, which includes contact lenses and lens care products."Combine Bausch & Lomb's scientific expertise in polymer chemistry and surface science with our technical proficiency in engineering efficient manufacturing systems. Then factor in the benefits of having the best-known brand in eye care, and you quickly realize the strategic advantage we have in the global vision care market.
"To capture the lucrative and fastest growing segments of the contact lens market, we are focusing our research and development efforts on building on our comprehensive array of lens materials, inventive lens designs and advanced manufacturing platforms.
"Already this approach has delivered results, bringing to market five innovations in soft contact lens technology in as many years: PureVision, SofLens66 Toric, SofLens Multi-Focal, SofLens One Day and SofLens Comfort.
"Our global leadership in the lens care market - led by Bausch & Lomb's flagship brand ReNu and our market-leading technology - provides a healthy, steady income to fund operations and increase investment in R&D.
"We will continue to invest in the high margin lens care business to ensure a steady stream of unique formulations and enhanced products that meet consumers' growing demand for more convenience and greater comfort."
---------------------------------------------------------------------------------------------------------------------------
[PHOTOGRAPH]
[PHOTOGRAPH CAPTION:]
---------------------------------------------------------------------------------------------------------------------------
SofLens
Multi-Focal Contact LensesLaunched in 2002, SofLens Multi-Focal contact lenses are designed specifically for people with presbyopia, a condition affecting people during middle age requiring them to wear reading glasses or bifocals. The lens delivers crisp visual acuity for near, distant and intermediate vision, smoothly and comfortably.
---------------------------------------------------------------------------------------------------------------------------
Bausch & Lomb 10 Annual Report 2002
[PHOTOGRAPH]
Bausch & Lomb 11 Annual Report 2002
VISION CARE PRODUCT DEVELOPMENT
|
|
|
|
Beyond |
|
Contact Lenses |
|||||
PureVision* |
X |
X |
X |
X |
|
SofLens66 Toric |
X |
X |
|||
SofLens One Day |
X |
X |
X |
X |
|
SofLens Comfort |
X |
X |
X |
X |
|
SofLens Multi-Focal |
X |
X |
X |
X |
|
Continuous Wear Line Extensions |
X |
X |
|||
Enhanced Comfort/Visual Acuity |
X |
||||
Ortho-K |
X |
X |
|||
Contact Lens Care |
|||||
ReNu MultiPlus |
X |
X |
|||
ReNu MultiPlus No Rub Formula |
X |
X |
X |
X |
|
Next-Generation Multi-Purpose Solution |
X |
X |
|||
Multi-Action RGP Solution |
X |
X |
X |
* Subsequent to August 2002, PureVision contact lenses are no longer available in the U.S. market.
[LEGEND]
Product Available in Major Markets in the Following Regions in 2001:
X
Americas, Europe and AsiaProduct Launch/Expansion Expected into Additional Major Markets in the Following Regions:
X
Americas
Information in the above chart is based on the company's current projections regarding commercial availability of products in its pipeline as of the date of publication of this annual report. Actual product availability will depend upon, among other items, progress in the development process and the ability to obtain regulatory approvals in specific markets, which could differ from these expectations.
Bausch & Lomb 12 Annual Report 2002
Exceptional Comfort
To make contact lens wear more comfortable - and to tackle end-of-day discomfort, the main reason people give for discontinuing contact lens wear - Bausch & Lomb is taking a two-pronged approach, one from the lens side, the other from the solutions side. By leveraging our core competencies in surface science and chemistry, we are pursuing novel coatings and other options for contact lenses that could enhance comfort. And our chemists are pursuing new formulations for multi-purpose solutions, which can increase comfort and enhance the contact lens wearing experience, targeting the launch of a next-generation chemical solution in 2004.
[PHOTOGRAPH]
Bausch & Lomb 13 Annual Report 2002
[PHOTOGRAPH]
SURGICAL
Bausch & Lomb 14 Annual Report 2002
Bausch & Lomb's ophthalmic surgical business - which includes diagnostic and therapeutic equipment, instruments and blades, and related products - is all about precision.
Whether removing a clouded lens in the eye of a patient with cataracts or reshaping the cornea to correct the vision of another, surgeons require precise instruments to perform exquisitely exacting techniques when operating on the delicate tissues or in the tiny interior of the eye.
Cataract and Vitreoretinal Surgery
Bausch & Lomb's research and development efforts are focused on providing surgeons with the tools they need to deliver the outcomes they - and their patients - demand.
In the vitreoretinal arena, that means using micro technology to engineer precision miniaturized equipment - like our one-of-a-kind Millennium TSV25 System, introduced in 2002 - that allows for a less invasive procedure, which in turn reduces trauma to the eye and can speed healing.
It means developing modular equipment platforms for cataract surgery - like our superb Millennium phacoemulsification system - so that surgeons can easily and cost-effectively upgrade to the latest and most efficacious technology. Our current efforts include enhancements to the Millennium system's pump design, as well as the pursuit of next-generation technologies for cataract removal.
It means developing new intraocular lenses (IOLs) - including square-edge designs that reduce a patient's chance of needing a follow-up procedure. It also means developing unique insertion systems using smaller incisions to precisely deliver the lens into the eye and novel packaging configurations that pre-load IOLs into the inserter, both with the goals of reducing trauma, speeding healing time and providing surgeons with a product that will improve their operational efficiencies.
It also means pushing the limits of optics to invent IOLs designed to improve - rather than simply restore - vision after surgery, such as accommodating IOLs for people with presbyopia.
[PHOTOGRAPH]
[PHOTOGRAPH CAPTION:]
--------------------------------------------------------------------------------------------------------------------------
Millennium TSV25
SystemBausch & Lomb's Millennium TSV25 System, with entry-site alignment cannulas and the 25-gauge Lightning high-speed cutter, allows surgeons to operate more swiftly, more effectively and more cost efficiently in a unique system that causes less trauma to the eye and may speed healing for the patient.
--------------------------------------------------------------------------------------------------------------------------
Bausch & Lomb 15 Annual Report 2002
[PHOTOGRAPH]
Refractive Surgery
In refractive surgery, where our laser and associated suite of products have already set the worldwide "gold standard" for outcomes, we are aiming even higher with advances and enhancements.
Our Zyoptix Diagnostic Workstation, introduced in 2002, conveniently combines the comprehensive diagnostic equipment needed for the customized Zyoptix procedure onto one physical platform, making it more efficient for the surgeon to gather individual patient data required to generate the laser's precise firing algorithm.
Our new microkeratome will debut in 2003, incorporating novel high-performance blades with enhanced flap-thickness control and other performance improvements.
Our physicists, clinicians and researchers, collaborating with some of the world's foremost optics labs, are working on the leading edge of science in the study of the eye's higher order aberrations. This pioneering work will form the basis for exciting enhancements to our ablation software, and in the development of the next generation of lasers and diagnostic equipment - all so that surgeons can offer even more precise vision to their patients.
[PHOTOGRAPH]
[PHOTOGRAPH CAPTION:]
---------------------------------------------------------------------------------------------------------------------------
Global Strategy:
Vice President of Global Surgical, Kamal K. Sarbadhikari, leads worldwide strategy for Bausch & Lomb's surgical business, which includes products used in cataract, vitreoretinal and refractive surgery."Our strategic direction is clear: to invent, engineer and build products that provide improved diagnostic capabilities, better patient outcomes and greater efficiencies in ophthalmic surgical procedures.
"At Bausch & Lomb, we are drawing on our heritage and core competencies in advanced optics, precision instrumentation, polymer chemistry and cast molding to make products that perform better and meet the needs of the world's eye surgeons.
"In cataract and vitreoretinal surgery, our development resources are dedicated to technologically differentiated products including advanced intraocular lenses, miniaturized equipment and modular surgical platforms. Our focus is to provide our customers with products that will generate predictable and efficacious procedures that lead to the best outcomes for their patients.
"Refractive surgery is the smallest of Bausch & Lomb's product categories, but one where we hold a significant worldwide market position. Our research focus in this category is on pushing the frontier of personalized vision correction by developing sophisticated laser systems, software and diagnostic tools, all to provide superior patient outcomes."
Bausch & Lomb 16 Annual Report 2002
SURGICAL PRODUCT DEVELOPMENT
|
|
|
|
Beyond |
||
Cataract |
||||||
Equipment |
Millennium Enhancements |
|||||
Alternate Pump Technology |
X |
|||||
Next-Generation Cataract Removal Technologies |
X |
|||||
Silicone IOLs |
SoFlex |
X |
||||
Design Enhancements |
X |
X |
X |
|||
Acrylic IOLs |
Hydroview |
X |
||||
Design Enhancements |
X |
X |
||||
Akreos |
X |
X |
||||
Design Enhancements |
X |
X |
X |
|||
Insertion Devices |
Silicone Lens/Small-Incision Inserter Combo |
X |
||||
Preloaded Inserters |
X |
|||||
Accommodating IOL |
X |
|||||
Viscoelastics |
Product Enhancements/Extensions |
X |
X |
|||
Vitreoretinal |
||||||
Millennium Enhancements |
||||||
TSV25 System |
X |
X |
||||
Endolase Green Laser |
X |
|||||
Refractive |
||||||
Laser |
Technolas 217z |
X |
X |
|||
Next-Generation Laser |
X |
|||||
Procedure |
Planoscan Hyperopia |
X |
X |
|||
Zyoptix Personalized Correction |
X |
X |
||||
Diagnostic |
Zyoptix Diagnostic Workstation |
X |
||||
Next-Generation Diagnostic Equipment |
X |
X |
||||
Microkeratomes and Blades |
Design Enhancements |
X |
X |
[LEGEND]
Product Available in Major Markets in the Following Regions in 2001:
X
Americas, Europe and AsiaProduct Launch/Expansion Expected into Additional Major Markets in the Following Regions:
X
Europe and AsiaInformation in the above chart is based on the company's current projections regarding commercial availability of products in its pipeline as of the date of publication of this annual report. Actual product availability will depend upon, among other items, progress in the development process and the ability to obtain regulatory approvals in specific markets, which could differ from these expectations.
Bausch & Lomb 17 Annual Report 2002
Bausch & Lomb's ophthalmic pharmaceutical business - comprised of proprietary and generic prescription products and over-the-counter medications - has the potential to be the company's largest growth driver over the next several years.
Addressing Unmet Needs
Our main strategy is to use the combined strength of our own research and development capabilities, along with select partnerships, to expand our proprietary portfolio and develop innovative drug delivery technologies to achieve consistent and sustainable category growth while meeting significant unmet needs in the treatment of blinding diseases.
In the shorter term, we will introduce product line extensions and expand the geographic availability of our robust-selling ocular vitamins and other multisource and branded prescription products. Notable among these is our Ocuvite PreserVision line of ocular vitamins, introduced in the U.S. and some European markets in 2002, which we will roll out into additional markets over the next several years.
Expanding our proprietary offerings, we anticipate a 2004 launch of a new eye drop combining our soft steroid - loteprednol etabonate - with an antibiotic to treat post-operative conditions. This builds on the franchise we enhanced in 2001 when we acquired the rights to the formulation contained in Lotemax and Alrex, our successful lines of eye drops.
[PHOTOGRAPH]
Bausch & Lomb 18 Annual Report 2002
PHARMACEUTICALS
[PHOTOGRAPH]
[PHOTOGRAPH CAPTION:]
---------------------------------------------------------------------------------------------------------------------------
Ocuvite PreserVision
Bausch & Lomb's current vitreoretinal offerings include Ocuvite PreserVision ocular vitamins, which have been clinically shown in the National Eye Institute's Age-Related Eye Disease Study to reduce the risk of vision loss among patients with advanced age-related macular degeneration.
---------------------------------------------------------------------------------------------------------------------------
Bausch & Lomb 19 Annual Report 2002
[PHOTOGRAPH]
[PHOTOGRAPH]
[PHOTOGRAPH CAPTION:]
---------------------------------------------------------------------------------------------------------------------------
Global Strategy:
Vice President of Global Pharmaceuticals, Gary M. Phillips, M.D., directs the worldwide strategy for Bausch & Lomb's pharmaceuticals business."Our strategic focus on proprietary products, vitreoretinal treatments and innovative drug delivery technology takes maximum advantage of key capabilities at Bausch & Lomb: our recognized expertise in polymer chemistry and biochemistry, our proficiency in specialized pharmaceutical manufacturing, and our skills in precision engineering and microsurgical technology.
"Building on the U.S. successes of Lotemax and Alrex, our proprietary soft steroid products which will be introduced in 2003 into select markets in Europe, we are working to expand our portfolio of premium proprietary drugs through line extensions, formulation enhancements and strategic partnerships.
"We are moving ahead with development programs to assess the safety and efficacy of the Retisert implant in the treatment of three vitreoretinal diseases and see exceptional longer-term potential in pairing this implant technology with additional drugs to treat other diseases and in developing next-generation delivery systems.
"We are intensely focused on what is considered to be ophthalmology's next frontier - the vitreoretinal arena, which includes diseases of the back of the eye - diseases which blind millions of people each year.
"When you consider that an estimated 55 percent of cases of ophthalmic disease are vitreoretinal in nature, realize that less than five percent of worldwide ophthalmic drug revenues come from the treatment of vitreoretinal diseases, and understand that the relatively few approved treatments are often largely ineffective, you can see the enormous potential for development and growth."
---------------------------------------------------------------------------------------------------------------------------
Bausch & Lomb 20 Annual Report 2002
Strategic Alliances
Emphasizing the development of distinctive drug delivery technologies and more effective treatments for vitreoretinal diseases, Bausch & Lomb has formed strategic alliances with select partners. In 2002, we signed a licensing agreement with InSite Vision for ISV 403 - entering clinical trials in 2003 - which combines a fourth-generation fluoroquinolone antibiotic with DuraSite, InSite's patented drug delivery technology.
Our Retisert implant, developed from a drug delivery platform designed by our research partner, Control Delivery Systems (CDS), is in Phase III trials in the U.S. using the well-known steroid fluocinolone acetonide in the treatment of two potentially blinding conditions, posterior uveitis and diabetic macular edema (DME). We continue to target commercialization of a first indication for this product in 2004. We also continue to pursue opportunities for using the Retisert implant with fluocinolone acetonide to treat the wet form of age-related macular degeneration (AMD).
Future Developments
With the worldwide rights to ophthalmic indications using the CDS platform, Bausch & Lomb is pursuing other drugs to deliver using this implant technology. Our scientists are aggressively screening drugs that could be utilized for ophthalmic indications in both current and next-generation delivery platforms. Through our initial screening process, we've identified several drug compounds that are now in pre-clinical testing to assess their viability for future development to target diseases like AMD, DME, diabetic retinopathy, glaucoma and others. We will accelerate these efforts in the next several years.
And while we work to maximize the potential of current micro technology, our researchers are already designing next-generation products, including implants to deliver large molecule therapeutics (an effort that could immensely expand the treatment population), implants that would require an even smaller incision (or no incision at all) and biodegradable implants that dissolve after drug delivery is complete.
Finally, building on the success of our Ocuvite line of ocular vitamins, we are pursuing ways to improve upon the efficacy of our current products and to develop the next generation of ocular nutritional supplements.
Bausch & Lomb 21 Annual Report 2002
PHARMACEUTICALS PRODUCT DEVELOPMENT
|
|
|
|
Beyond |
||
Branded/Prescription |
Lotemax (1) |
X |
X |
X |
X |
|
Alrex (1) |
X |
X |
X |
X |
||
Loteprednol Etabonate Combination (2) |
X |
X |
||||
Carteol Long Acting (1) |
X |
X |
X |
X |
||
Diclofenamide (3) |
X |
|||||
Brimonidine (1) |
X |
X |
||||
ISV 403 (4) |
X |
|||||
Drug Delivery |
Retisert with Fluocinolone Acetonide (2) (3) |
X |
X |
|||
Additional Back-of-the-Eye Drug Delivery |
X |
|||||
OTC |
Ocuvite |
X |
X |
X |
X |
X |
Ocuvite PreserVision |
X |
X |
X |
X |
(1) Pending approval in certain markets for 2003 commercial launch
(2) Phase III clinical trial status early 2003
(3) Phase II clinical trial status early 2003
(4) Phase I clinical trial status early 2003
(5) Pre-clinical trial stage
[LEGEND]
Product Available in Major Markets in the Following Regions in 2001:
X
AmericasProduct Launch/Expansion Expected into Additional Major Markets in the Following Regions:
X
AmericasInformation in the above chart is based on the company's current projections regarding commercial availability of products in its pipeline as of the date of publication of this annual report. Actual product availability will depend upon, among other items, progress in the development process and the ability to obtain regulatory approvals in specific markets, which could differ from these expectations.
Bausch & Lomb 22 Annual Report 2002
[PHOTOGRAPH]
Bausch & Lomb 23 Annual Report 2002
[PHOTOGRAPH]
SEEING/THE NUMBERS
[FINANCIAL SECTION TABLE OF CONTENTS]
25 |
FINANCIAL REVIEW |
46 |
STATEMENTS OF INCOME |
47 |
BALANCE SHEETS |
48 |
STATEMENTS OF CASH FLOWS |
49 |
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |
50 |
NOTES TO FINANCIAL STATEMENTS |
80 |
REPORTS OF MANAGEMENT AND AUDIT COMMITTEE |
81 |
REPORT OF INDEPENDENT ACCOUNTANTS |
Bausch & Lomb 24 Annual Report 2002
Financial Review
This financial review, which should be read in conjunction with the accompanying financial statements, contains management's discussion and analysis of results of operations, liquidity and 2003 outlook for Bausch & Lomb Incorporated (the "company"). References within this financial review to earnings per share refer to diluted earnings per share.
Financial Overview
The company reported net income of $73 or $1.34 per share for the year ended December 28, 2002, compared to 2001 net income of $21 or $0.39 per share and 2000 net income of $83 or $1.52 per share. Income from continuing operations was $73 or $1.34 per share in 2002 compared to $42 or $0.78 per share in 2001 and $82 or $1.49 per share in 2000. A reconciliation of reported net income and earnings per share to income from continuing operations and earnings per share from continuing operations is presented below:
2002 |
2001 |
2000 |
||||
Amount |
Per Share |
Amount |
Per Share |
Amount |
Per Share |
|
Reported net income |
$72.5 |
$1.34 |
$21.2 |
$0.39 |
$83.4 |
$1.52 |
Sale price adjustment related to disposal |
|
|
|
|
|
|
Gain on adoption of SFAS No. 133 |
- |
- |
(0.3) |
- |
- |
- |
Extraordinary gain on retirement of debt |
- |
- |
- |
- |
(1.4) |
(0.03) |
Reported income from continuing operations |
$72.5 |
$1.34 |
$42.0 |
$0.78 |
$82.0 |
$1.49 |
Average Shares Outstanding - Diluted (000's) |
53,997 |
53,715 |
54,724 |
The company's results for each of the years presented were impacted by several significant items. The following three paragraphs summarize, for each of the years 2002, 2001 and 2000, significant items impacting company results.
Restructuring charges and asset write-offs recorded during 2002 include $26 before taxes related to the profitability improvement plan announced and recorded during the third quarter of 2002, as well as severance associated with the transfer of PureVision extended wear contact lens manufacturing from the U.S. to Ireland as a result of a ruling against the company in a U.S. patent lawsuit (see Note 21 - Other Matters for a discussion of current litigation related to the PureVision contact lens product line). Restructuring charges and asset write-offs also included charges recorded during the first quarter of 2002 of $24 before taxes related to the second phase of the 2001 restructuring program designed to reduce ongoing operating costs. Additionally, a $1 pre-tax reversal of previously recorded restructuring charges related to the 2001 restructuring program was recorded during the third quarter of 2002. Pre-tax gains on the sale of the company's remaining equity interest in Charles River Laboratories, Inc. of $28 were realized in the first quarter of 2002. Finally, during 2002, an outside partner exercised its put right for all of its partnership interest and the company recorded a one-time early liquidation premium, which was recorded as an after-tax minority interest charge of $7. The 2002 significant items already reflected in after-tax net income aggregated to contribute a net decline of $21 or $0.39 per share.
On January 22, 2002, the company reached agreement with the buyer of its former eyewear segment on certain purchase price adjustments. To reflect this agreement, a charge of $21 after taxes was recorded in the fourth quarter of 2001 as a sale price adjustment related to the disposal of discontinued operations. Restructuring charges and asset write-offs recorded during the fourth quarter of 2001 of $8 before taxes related to the first phase of a restructuring program designed to reduce ongoing operating costs. Additional charges recorded in 2001 of $17 before taxes for Phase II of the 2000 restructuring plan were partially offset by a $4 pre-tax reversal in the fourth quarter reflecting severance and other costs that were not required. Pre-tax gains on the sale of the company's remaining minority equity interest in Charles River Laboratories, Inc., following the disposition of that entity were $19. Severance costs of $3 before taxes for the company's former chief executive off icer were recorded in the third quarter of 2001. Additionally, certain costs totaling $7 before taxes were incurred in the fourth quarter of 2001 in connection with the hiring of the company's
Bausch & Lomb 25 Annual Report 2002
current chief executive officer. The adoption of a new accounting standard resulted in a gain of less than $1 before taxes. The 2001 significant items, excluding the sale price adjustment related to the disposal of discontinued operations and the gain on the adoption of Statement of Financial Accounting Standards (SFAS) No. 133, already reflected in after-tax net income aggregated to contribute a net decline of $8 or $0.14 per share.
Results in 2000 included restructuring charges and asset write-offs associated with the implementation of the company's new organizational structure, partially offset by reversals of prior restructuring reserves. This net charge reduced 2000 income from continuing operations by $34 before taxes. Purchase accounting adjustments including a $3 write-up of inventories to fair value and IPR&D charges of $24 in 2000 were related to the acquisitions of Groupe Chauvin and Woehlk. The company recognized a $1 gain on the extinguishment of long-term debt in the fourth quarter of 2000. The 2000 significant items, excluding the extraordinary gain on retirement of debt, already reflected in after-tax net income aggregated to contribute a net decline of $47 or $0.87 per share.
The company adopted SFAS No. 142 as of December 30, 2001 under which the company will no longer amortize goodwill. Had the pronouncement been in effect in 2001 and 2000, amortization expense would have been reduced by $27 and $25 before taxes and earnings per share after taxes increased by $0.32 and $0.30 as of December 29, 2001 and December 30, 2000, respectively.
Net Sales And Income By Business Segment
During the first quarter of 2002, the company reevaluated the measures and management data used in decision making to ensure it continued to be properly aligned with the company's strategic objectives. As a result of the review, goodwill arising from vertically integrated acquisitions, product technology, other non-customer related intangibles and the associated amortization expense were reclassified to the Global Supply Chain segment to more accurately reflect their contribution to the company's return on net operating assets. Operating income is the primary measure of segment income. Segment income excludes the significant items noted in the Financial Overview. Prior year results have been restated to reflect the reclassification of amortization expense and to conform to the management reporting structure.
Effective at the beginning of 2001, the company reorganized from a product line structure to a regionally based management structure for commercial operations. The research and development and product supply functions were also realigned and are managed on a global basis. The company's segments are comprised of the Americas region; the Europe, Middle East and Africa region (Europe); the Asia region; the Research, Development and Engineering organization and the Global Supply Chain organization. In each geographic segment the company markets products in five product categories: contact lens, lens care, pharmaceuticals, cataract and vitreoretinal, and refractive. The contact lens category includes traditional, planned replacement disposable, daily disposable, multifocal, continuous wear and toric soft lenses and rigid gas permeable lenses. The lens care category includes multi-purpose solutions, enzyme cleaners and saline solutions. The pharmaceuticals category includes generic and proprietary prescription ophthalmic drugs, ocular vitamins, over-the-counter medications and vision accessories. The cataract and vitreoretinal category includes products and equipment used for cataract and vitreoretinal surgery. The refractive category includes lasers, microkeratomes, diagnostic equipment and other products and equipment used in refractive surgery. There are no transfers of products between product categories.
The following table summarizes net sales and operating income by segment and presents total company operating income. Throughout the remainder of this financial review, the term "purchase accounting adjustments" will be used to refer to purchased IPR&D and other required purchase accounting adjustments associated with the acquisitions of Groupe Chauvin and Woehlk.
Bausch & Lomb 26 Annual Report 2002
2002 |
2001 |
2000 |
|||||
As |
% of Total |
As |
% of Total |
As |
% of Total |
||
Net Sales 1 |
|||||||
Americas |
$ 844.1 |
46% |
$ 763.1 |
46% |
$ 878.2 |
51% |
|
Europe |
613.1 |
34% |
581.7 |
35% |
472.0 |
28% |
|
Asia |
359.5 |
20% |
320.7 |
19% |
368.5 |
21% |
|
$1,816.7 |
$1,665.5 |
$1,718.7 |
|||||
Operating Income |
|||||||
Americas |
$ 247.9 |
$ 212.6 |
$ 315.2 |
||||
Europe |
154.9 |
130.9 |
86.9 |
||||
Asia |
106.4 |
81.8 |
110.2 |
||||
Research, Development & |
|
|
|
||||
Global Supply Chain |
(107.2) |
(119.8) |
(98.1) |
||||
Segment Income |
$ 256.8 |
$ 161.7 |
$ 277.8 |
||||
Corporate administration 2 |
(58.1) |
(43.9) |
(52.0) |
||||
Restructuring charges and |
|
|
|
||||
Purchase accounting |
|
|
|
||||
Other significant charges 5 |
- |
(9.9) |
(23.4) |
||||
Operating income from |
|
|
|
1
Prior year amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.2
Corporate administration expenses are discussed in Operating Costs and Expenses.3
Expenses associated with certain restructuring plans as described in Restructuring Charges and Asset Write-offs.4
Purchase accounting adjustments consisted of a charge of $23.8 for purchased IPR&D and a purchase accounting inventory adjustment of $3.0.5
Other significant charges in 2001 consisted of $7.1 related to hiring costs for the company's current chief executive officer and $2.8 of severance costs for the company's former chief executive officer. In 2000, $3.7 related to the failed acquisition attempt of Wesley Jessen VisionCare, Inc. and $19.7 related to the settlement of litigation.Net Sales
Net sales in 2002 increased 9% from 2001 and on a constant dollar basis (i.e., excluding the effect of foreign currency exchange rates) increased 8%. Net sales in 2001 decreased 3% and 1% from 2000 on an actual and constant dollar basis, respectively.The Americas segment's net sales for 2002 increased 11% (12% in constant dollars) compared to the prior year. The segment experienced strong gains in contact lens sales from newer-technology products such as SofLens66 Toric, SofLens Comfort and SofLens One Day which was mitigated in part due to the company's inability to sell PureVision lenses in the U.S. as a result of the decision of the U.S. District Court for the District of Delaware (see Note 21 - Other Matters for discussion of current litigation related to the PureVision contact lens product line). Growth in the region was also driven by higher sales of lens care products. In the U.S., lens care revenue gains represented growth from a relatively low base in 2001, when the retail trade was still working down lens care inventory. At year-end 2001, the company believes shipments to retailers were in balance with consumer consumption. Growth in lens care was also aided by the intro duction of the company's no-rub claim for ReNu MultiPlus earlier in the year. The segment experienced significant growth in sales of pharmaceutical products. Incremental sales of Ocuvite PreserVision ocular vitamins and strong sales by the remaining products in the company's Ocuvite vitamin brand, as well as for Lotemax and Alrex proprietary soft steroid products and multisource pharmaceuticals were the primary drivers of this growth. These results were partially offset by net year-to-date declines in refractive and cataract sales. Refractive sales in the Americas in 2002 were hampered by the continuing decline of elective refractive surgeries, directly impacting capital equipment purchases in the U.S. An increase in laser placements and diagnostic equipment sales during the fourth quarter which the company believes reflects customers' purchases in anticipation of customized ablation approvals in 2003, partially offset the low sales experienced earlier in the year. The 2001 decrease in the Americas was primarily due to U.S. reductions in lens care retail inventory carrying requirements, and softness in the U.S. economy that led to a decline in purchases of refractive equipment and to consumer postponement of elective surgery.
Net sales in the Europe segment increased 5% and were flat in constant dollars as compared to the prior year. This performance was led by higher contact lens revenues due to strong sales of planned replacement and disposable lenses. Lens care product sales growth in actual dollars was flat as currency benefits offset moderate declines primarily resulting from the company's decision in early 2002 to exit non-strategic product lines acquired as part of the October 2000 Woehlk acquisition. Pharmaceutical product sales increased due to favorable currency trends. Constant dollar performance was flat as a result of the company's decision to exit certain non-strategic product lines acquired with Groupe Chauvin. Cataract and vitreoretinal
Bausch & Lomb 27 Annual Report 2002
product sales growth was also due to currency, which offset sales declines particularly in Spain where an exclusive distributorship decided to exit the business. Slowing economic conditions and negative consumer publicity in Europe drove lower refractive equipment product sales during 2002. During 2001, Europe experienced solid sales growth, in part due to acquisitions.
The Asia segment's net sales increased 12% from the prior year in actual and in constant dollars. This increase was primarily due to higher lens care and contact lens sales, particularly in Japan and China, which benefited from higher sales of ReNu solution and the launch of the SofLens66 Toric lens late in the first quarter of 2002. The segment also experienced higher sales of phacoemulsification equipment and an increase in laser placements. Asia experienced declines in 2001 primarily due to a lack of new contact lens product introductions which resulted in some lost market share and a continuation of weak economic conditions in Japan.
Segment Income Segment income excludes significant items such as restructuring charges and asset write-offs, purchase accounting adjustments and other significant charges, as well as corporate administration expenses.
In 2002, segment income increased $95 or 59% as compared to 2001. Increases in sales of higher-margin contact lens products, such as SofLens66 Toric, experienced by all commercial segments and increases in sales of the ReNu brand of chemical disinfectants in the Americas and Asia were the primary drivers of the increase. Also, strong sales growth achieved by the Americas for proprietary and multisource pharmaceuticals, as well as for the company's lines of ocular vitamins, which benefited from the launch of Ocuvite PreserVision, contributed to the increase. Changes in foreign currency exchange rates, manufacturing cost-savings initiatives and administrative savings realized through restructuring actions had a positive impact on segment income. The 2002 increases were partially offset by increased spending to support the product launches of ReNu MultiPlus No Rub solution and Ocuvite PreserVision ocular vitamins in the U.S. and SofLens66 Toric contact lenses in Japan.
Research, Development & Engineering operating costs increased $1 in 2002, demonstrating the company's continued commitment to research and development (R&D) spending in support of its goal of consistently bringing new products to market, in particular developing potential new applications for the Envision TD implant technology for treating retinal and other back-of-the-eye diseases. The Global Supply Chain segment's operating costs decreased by $12 or 11% from 2001 as a result of product cost savings from ongoing restructuring actions and the adoption of SFAS No. 142, as illustrated in Note 6 - Business Segment and Geographic Information, partially offset by expenses related to the move of PureVision contact lens manufacturing from the U.S. to Ireland (see Note 21 - Other Matters for discussion of current litigation related to the PureVision contact lens product line) and obsolescence charges recorded during 2002 related to the disco ntinuation of certain lines of intraocular lenses.
In 2001, segment income decreased $116 or 42% as compared to the prior year. Decreases in sales of higher-margin lens care and refractive surgery products in the U.S. were partially offset by an increase in Europe's segment income. Europe's performance included incremental sales from the full year impact of the acquisitions in the second half of 2000 of Groupe Chauvin and Woehlk and administrative savings realized through restructuring actions. Research, Development & Engineering segment operating costs increased $7 or 5% in 2001 in support of the company's R&D spending commitment towards new products. Global Supply Chain segment operating costs increased $22 or 22% from 2000. These increases were a result of costs previously absorbed by the geographic regions as well as spending for plant expansion for the manufacture of soft toric contact lenses.
Bausch & Lomb 28 Annual Report 2002
Net Sales And Income By Geographic Region
Net sales and income represent sales originating in entities physically located in the identified geographic area. A summary of net sales and operating income from continuing businesses by geographic region follows:
2002 |
2001 |
2000 |
||||
|
% of Total |
|
% of Total |
|
% of Total |
|
U.S. |
$ 761.8 |
42% |
$ 683.4 |
41% |
$ 828.0 |
48% |
Non-U.S. |
1,054.9 |
58% |
982.1 |
59% |
890.7 |
52% |
$1,816.7 |
$1,665.5 |
$1,718.7 |
||||
Operating |
Operating |
|
||||
U.S. |
$ (73.0) |
$ (129.8) |
$ 8.7 |
|||
Non-U.S. |
222.7 |
216.5 |
133.2 |
|||
$ 149.7 |
$ 86.7 |
$ 141.9 |
1
Amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.2002 Versus 2001 Net sales in markets outside the U.S. totaled $1,055 in 2002, an increase of $73 or 7% when compared with 2001. Net sales outside the U.S. represented approximately 58% of consolidated net sales in 2002 and 59% in 2001. Excluding the impact of currency, net sales outside the U.S. increased 5%. This increase was primarily due to higher lens care and contact lens sales driven by strong sales of planned replacement and disposable lenses. In particular, Japan benefited from higher sales of ReNu solution and the launch of the SofLens66 Toric lens late in the first quarter of 2002.
Net U.S. sales totaled $762 in 2002, an increase of $78 or 11% over the prior year, and represented approximately 42% and 41% of consolidated net sales for 2002 and 2001, respectively. The U.S. experienced strong gains in contact lens sales from newer-technology products such as SofLens66 Toric, which was mitigated in part due to the company's inability to sell PureVision lenses in the U.S. as a result of a U.S. patent trial court ruling, which prohibited the company from selling those lenses in the U.S. The net sales growth was also driven by gains in lens care products representing growth from a relatively low base in 2001. Growth in lens care was also due to the introduction of ReNu MultiPlus No Rub solution earlier in the year. The U.S. also benefited from strong sales in branded proprietary and multisource pharmaceuticals, as well as from the company's lines of ocular vitamins.
In 2002, operating income in markets outside the U.S. increased 3% from 2001. Operating income increases were led by the European and Asian regions. Increases in sales of higher-margin products, such as SofLens66 Toric contact lenses and the ReNu brand of chemical disinfectants, the positive impact of changes in foreign currency exchange rates and savings realized through restructuring actions contributed to the increase. The increases were partially offset by higher spending to support the launch of SofLens66 Toric contact lenses in Japan.
In 2002, operating loss in the U.S. decreased 44% from 2001. Increases in sales of higher-margin products, such as SofLens66 Toric contact lenses and the ReNu brand of chemical disinfectants, and the strong sales growth of proprietary and multisource pharmaceuticals, as well as for the company's lines of ocular vitamins, were primary drivers of the decrease. These factors were partially offset by increased spending to support the product launches of ReNu MultiPlus No Rub solution and Ocuvite PreserVision vitamins. Additionally, product cost savings from ongoing restructuring actions, partially offset by underabsorbed manufacturing overhead in the Rochester plant (due to the move of PureVision contact lens manufacturing from the U.S. to Ireland) and obsolescence charges recorded during 2002 related to the discontinuation of certain lines of intraocular lenses (see Note 21 - Other Matters for discussion of current litigation related to the PureVision contact lens product line), contributed to the decrease. Higher corporate administration expense, primarily due to increased expenses associated with executive compensation and other employee benefit programs, and an increase in restructuring charges and asset write-offs, discussed in the Restructuring Charges and Asset Write-offs section below, partially offset the decrease in the U.S. operating loss.
In addition, the decrease in operating loss in the U.S. and the increase in operating income outside the U.S. is in part due to the adoption of SFAS No. 142, Goodwill and Intangible Assets, whereby the company ceased amortizing goodwill effective December 30, 2001. The 2001 pre-tax pro forma impact of the adoption to U.S. and non-U.S. operating earnings is $10 and $17, respectively, (see Note 8 - Accounting for Goodwill and Intangibles).
Bausch & Lomb 29 Annual Report 2002
2001 Versus 2000
Net sales in markets outside the U.S. increased 10% over the prior year and 16% in constant dollars and represented 59% of total net sales in 2001 and 52% in 2000. Net sales in 2001 included $95 of incremental sales from the acquisitions in the second half of 2000 of Groupe Chauvin and Woehlk and the 2001 acquisition of Fidia Oftal. Growth in Europe for lens and lens care products was more than offset by declines in Asia. The declines in Asia are primarily due to a lack of new contact lens product introductions which resulted in some lost market share and a continuation of weak economic conditions in Japan.Net U.S. sales, which represented 41% of total consolidated net sales, decreased 17% from 2000. Higher sales of proprietary and multisource pharmaceuticals were more than offset by declines in the lens care, refractive and contact lens categories.
In 2001, operating income in markets outside the U.S. increased 63% from 2000. Operating income was led by the European region. Higher amortization due to acquisitions was partially offset by lower general and administrative expenses as a result of restructuring initiatives during the current year. Controlled discretionary spending in marketing, advertising and selling expenses also contributed to the improvement in operating income. The Asia segment outside of Japan experienced slight improvement in operating income, but this was more than offset by the impact of declines in sales in Japan and the weakened yen. The increase in non-U.S. operating income was also due to 2000 results reflecting IPR&D charges of $24 related to the acquisitions of Groupe Chauvin and Woehlk.
In 2001, the U.S. experienced an operating loss of $130 versus operating income of $9 in 2000. The loss in 2001 was primarily due to a decline in the gross margin resulting from lower sales of higher margin lens care, refractive surgery and contact lens products. The 2001 U.S. operating loss and 2000 operating income included restructuring costs of $15 and $31, respectively. Hiring costs of $7 for the company's current chief executive officer and severance costs of $3 for the company's former chief executive officer were included in the 2001 U.S. operating loss.
Net Sales By Product Category
In each geographic segment the company markets products in five product categories: contact lens, lens care, pharmaceuticals, cataract and vitreoretinal, and refractive. The following table presents net sales by product categories for the years 2002, 2001 and 2000:
2002 |
2001 |
2000 |
|
Net Sales |
Net Sales 1 |
Net Sales 1 |
|
Product Category |
|||
Contact Lens |
$ 523.9 |
$ 462.7 |
$ 475.8 |
Lens Care |
465.5 |
415.9 |
488.3 |
Pharmaceuticals |
396.1 |
344.7 |
279.4 |
Cataract and Vitreoretinal |
301.8 |
304.2 |
308.2 |
Refractive |
129.4 |
138.0 |
167.0 |
$1,816.7 |
$1,665.5 |
$1,718.7 |
1
Amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.Contact Lens Net Sales
2002 Versus 2001
Contact lens net sales were $524, an increase of 13% from the prior year. In constant dollars, contact lens net sales increased 12% for the year. Net sales in the Americas, Europe and Asia segments increased 11%, 20% and 9% in actual dollars and 12%, 14% and 10% in constant dollars, respectively. Each segment experienced strong sales of planned replacement and disposable products, including SofLens66 Toric, SofLens Comfort, SofLens One Day and PureVision that outpaced moderate revenue declines in older-technology offerings. However, sales in the Americas region slowed in the third quarter and declined in the fourth quarter due to the company's inability to sell PureVision contact lenses in the U.S. as a result of the U.S. trial court decision (see Note 21 - Other Matters for discussion of current litigation relating to the PureVision contact lens product line).2001 Versus 2000 Contact lens product net sales declined 3% in 2001 and increased 2% in constant dollars. In the Americas, sales were down 5% in actual and 3% in constant dollars, with strong sales of SofLens66 Toric and PureVision partially offsetting declines in older-technology products. A decline in Asia sales of 14% (5% in constant dollars) was partially offset by increases in Europe of 15% in actual dollars and 21% in constant dollars. Constant dollar declines in Asia were primarily a result of the lack of new contact lens prod-
Bausch & Lomb 30 Annual Report 2002
uct introductions which resulted in some lost market share and a continuation of weak economic conditions in Japan. Gains in Europe were partially driven by incremental sales from the acquisition of Woehlk, a German vision care business acquired in late 2000.
Lens Care Net Sales
2002 Versus 2001 Net sales for lens care products were $466, an increase of 12% in actual dollars and 11% in constant dollars from the prior year. Net sales in the Americas region increased 16% in both actual and constant dollars. In the U.S., revenue gains represented growth from a relatively low base in 2001, when the retail trade was working down inventory. Overall growth was also due to the introduction of the company's no-rub claim for ReNu MultiPlus multi-purpose solution earlier in the year. Lens care net sales in Europe were flat in actual dollars, but decreased 4% in constant dollars. Favorable impacts from currency were moderated by revenue declines largely due to the company's decision early in 2002 to exit non-strategic product lines acquired as part of the Woehlk acquisition in 2000. Asia region lens care net sales increased 15% in both actual and constant dollars. Sales increases in Asia were driven by the growth in the ReNu brand in Japan.
2001 Versus 2000 Lens care net sales declined 15% and 12% in 2001 in actual and constant dollars, respectively. Sales in the Americas decreased 21% in both actual and constant dollars. Growth in Europe of 9% was more than offset by a decrease in Asia of 17%. In constant dollars, Europe sales increased 13% and Asia decreased by 9%. The decline in the Americas was driven by the U.S., where trade customers continued to reduce lens care inventory carrying requirements, and the overall market for lens care products continued to decline. By year-end, trade inventory levels had achieved what the company believed to be a balance with consumption. Incremental sales from acquisitions in Europe were more than offset by weakness in the results for Japan, where a soft economy resulted in aggressive inventory reduction programs among most of the large publicly held wholesalers as well as the bankruptcy of three privately held distributors with whom the company dealt.
Pharmaceutical Net Sales
2002 Versus 2001 Net sales for pharmaceutical products were $396, an increase of 15% and 14% over the prior year, in actual and constant dollars, respectively. Gains were driven by the Americas region, where net sales were up 23% (26% excluding the impact of currency) for the year. Incremental sales of Ocuvite PreserVision ocular vitamins and strong sales by the remaining products in the company's Ocuvite brand, as well as for Lotemax and Alrex proprietary soft steroid products, and multisource pharmaceuticals were the primary drivers of this growth. In Europe, pharmaceutical net sales were up 5% in actual dollars for the year. In constant dollars, sales were flat. Favorable currency rates and the launch of the Ocuvite ocular vitamin line offset declines in constant dollar revenues resulting from the company's exiting a non-strategic veterinary pharmaceutical product line acquired with Groupe Chauvin.
2001 Versus 2000 Net sales for pharmaceutical products increased 23% and 25% in actual and constant dollars, respectively, over the prior year. Excluding the impact of the acquisitions of Groupe Chauvin and Fidia Oftal, sales increased 3% and 4% on an actual and constant dollar basis, respectively. In the Americas, sales in actual and constant dollars were up 3% for the year, reflecting good growth in the proprietary and multisource business. In the U.S., the company's anti-inflammatory ophthalmic drops, Lotemax and Alrex, continued to gain market share with solid, progressive growth. Year-to-date results reflected lower pricing levels in 2001 as a result of competitive pressure in the Americas, which drove down pricing in the company's generic business in the second half of 2000. In Europe, sales were up significantly, primarily as a result of incremental sales from acquisitions, as well as modest constant dollar growth in sales of the company's other pharmaceutical product lines.
Cataract and Vitreoretinal Net Sales
2002 Versus 2001 Net sales from the company's cataract and vitreoretinal products were $302, a 1% decrease from 2001. Excluding the impact of currency, net sales decreased 2%. Asia and Europe experienced growth in actual dollar performance while the Americas segment decreased 3%. In Asia, higher sales of instruments and vitreoretinal products drove the overall revenue increase, in combination with favorable currency rates. Sales in Europe reflect growth in viscoelastics as well as favorable currency rates, which were partially offset by a decrease in sales due to disruptions in Spain caused by a distributorship that was exiting the business. The company acquired the exclusive third-party distributor during September 2002 as described in Note 8 - Accounting for Goodwill and Intangibles. The decrease in the Americas is partly due to the loss of market share in 2001 resulting from the 2001 supply constraints for key products.
Bausch & Lomb 31 Annual Report 2002
2001 Versus 2000 Net sales for the company's cataract products declined 1% compared to 2000, but increased 1% in constant dollars. Sales in the Americas were down 9% in actual and constant dollars for the year, driven by continued supply constraints for key products and postponement of capital equipment purchases because of softness in the U.S. economy. Sales of cataract products in Europe were up 18% and 23% in actual and constant dollars, respectively. In Asia, sales were down 12% in actual and 4% in constant dollars.
Refractive Net Sales
2002 Versus 2001 Refractive products provided $129 in net sales, reflecting a decrease of 6% from the prior year. Excluding the impact of currency, net sales decreased 7% for the year. Strong sales growth in Asia was more than offset by declines in the other regions. Asia experienced an increase of 17% in actual and 15% in constant dollars for the year. Laser placements in Asia increased over the prior year, with a growing percentage associated with the company's Zyoptix system for customized ablation. Refractive net sales in the Americas segment were down 8% and 7% for the year in actual dollars and constant dollars, respectively. The decline reflects continued softness in the U.S. market for LASIK surgery that directly affects the number of LASIK procedures and capital equipment purchases. Net sales in Europe decreased 17% and 20% in actual and constant dollars from 2001, respectively, where slowing economic conditions and negative publicity about laser vision correction have driven down the rate of procedure growth in key European markets, and has also led to lower equipment sales.
2001 Versus 2000 Net sales of refractive products decreased 17% as compared to 2000 or 16% in constant dollars. The decline was driven by the Americas region, where the softness in the U.S. economy delayed capital spending by providers and resulted in consumers postponing elective surgery. Outside the Americas region, sales continued to post solid growth in Europe, and were essentially flat with the prior year in Asia. The company's sales growth outside the U.S. continued to reflect increasing equipment and procedure card sales for the Zyoptix system for customized ablation.
Operating Costs And Expenses
The ratio of cost of products sold to sales for continuing businesses was 44% in 2002, versus 46% and 43% in 2001 and 2000, respectively. The gross margin increase from the prior year was a result of product cost savings from ongoing restructuring actions, strong year-over-year growth in higher-margin contact lenses (SofLens66 Toric and PureVision) and lens care products and the positive impact of changes in foreign currency exchange rates. In addition, the total margin increase was partially offset by expenses related to the move of PureVision contact lens manufacturing from the U.S. to Ireland and obsolescence charges recorded during 2002 related to the discontinuation of certain lines of intraocular lenses. (See Note 21 - Other Matters for discussion of current litigation relating to the PureVision contact lens product line.) The decrease in 2001 margins reflected significantly lower U.S. sales of higher-margin refractive and lens care products and the negative impact of changes in foreign currency exchange rates.
Selling, administrative and general expenses, including corporate administration, were 38% of sales in 2002 compared to 40% in 2001 and 37% in 2000. The 2002 expenses reflect administrative savings realized through restructuring initiatives and continued control over discretionary spending which was partially offset by increased spending to support the product launches of ReNu MultiPlus No Rub multi-purpose solution and Ocuvite PreserVision ocular vitamins in the U.S. and SofLens66 Toric contact lens in Japan, as well as higher executive compensation and other employee benefit program expenses. The 2001 amounts reflected increased expenses associated with the European businesses acquired during 2000 over a lower year-over-year sales base. These expenses were partially mitigated by administrative savings realized through restructuring and continued control over discretionary spending. As described in Note 8 - Accounting for Goodwill and Intangibl es, the company adopted SFAS No. 142 as of December 30, 2001, under which the company no longer amortizes goodwill. Results for 2001 and 2000 include amortization expense of $27 and $25, respectively. Additionally, 2001 results included non-recurring items related to hiring costs for the company's current chief executive officer ($7) and severance costs for the company's former chief executive officer ($3). Excluding the 2001 non-recurring items and the pro forma amortization expense, selling, administrative and general expenses would have been 38% and 35% of sales in 2001 and 2000, respectively.
R&D expenses totaled $128 in 2002 and represented 7% of sales in 2002, 2001 and 2000, demonstrating the company's continued commitment to R&D spending in support of its goal of consistently bringing new products to market, in particular, developing potential new applications for the Envision TD implant technology for treating retinal and other back-of-the-eye diseases.
Bausch & Lomb 32 Annual Report 2002
Non-Operating Income And Expense
Other Income And Expense Interest and investment income was $45 in 2002, $48 in 2001 and $52 in 2000. Lower average investment levels and investment rates were the primary drivers of the decreases in 2002 and 2001. Partially offsetting the declines were gains from the sale of Charles River Laboratories stock of $28 and $19, in 2002 and 2001, respectively. During 2002, interest income of approximately $9 associated with income tax refunds also partially offset the decrease.
Interest expense was $54 in 2002, $58 in 2001 and $69 in 2000. The decreases in 2002 and 2001 from 2001 and 2000, respectively, were primarily due to lower average debt levels and interest rates. During 2002, there were three events that partially offset the decrease in 2002 from 2001. First, as described in Note 18 - Accounting for Derivatives and Hedging Activities, ineffectiveness of $2 associated with a treasury rate lock to hedge the benchmark interest rate in connection with company's forecasted debt offering was recognized as interest expense. Ineffectiveness was due to the issuance of $150 debt subsequent to the original forecasted debt offering. Second, $1 was recognized on the $150 five-year 6.95% fixed senior notes issued by the company in November 2002 as discussed in Note 12 - Debt. Third, $5 was recognized on the $63 World Headquarters debt. As described in Note 12 - Debt, the company consolidated debt associated with the World Headquarters office facility in the fourth quarter of 2001 and repaid the debt upon maturity in December 2002.
Foreign currency was a net loss of $4 in 2002, and a net gain of $8 and $11 in 2001 and 2000, respectively. The $12 decline in 2002 from 2001 is attributable to lower premium income realized on foreign currency exchange contracts and increased expense from the company's hedging program. In addition, a gain was realized in 2001 on hedging activities associated with a Netherlands guilder investment transaction as described in Note 10 - Other Short- and Long-Term Investments. The $3 decline in 2001 from 2000 resulted largely from lower premium income realized on foreign currency exchange contracts utilized in the company's hedging program, which was the result of lower U.S. interest rates. This reduction was partially offset by gains realized on hedging activities associated with the aforementioned guilder transaction.
Other income in 2000 consisted of proceeds from a patent litigation settlement with Alcon Laboratories, Inc. (Alcon). The settlement agreement resolved the patent infringement case the company filed against Alcon in October 1994. Under the terms of the settlement agreement, Alcon made an up-front payment to the company of $25, which was recorded as income in the first quarter of 2000. Additionally, Alcon agreed to pay the company a stream of royalties over the next eight years after 2000 for a worldwide license under the company's patent for the simultaneous use of a chemical disinfecting solution with an enzyme cleaning product for contact lens care.
Income Taxes The company's reported tax rate for continuing operations was 34.5% in 2002 as compared to 33.8% in 2001 and 40.8% in 2000. The 2001 rate reflected a deferred tax benefit recorded in the first quarter of 2001 to reflect a change in the statutory tax rate associated with the company's joint venture in China. Excluding this item, the effective tax rate would have been 35.0%. The 2000 rate reflected non-deductible purchased IPR&D for which there is not an associated tax benefit. Excluding this item, the effective tax rate would have been 35.5%.
When calculating income tax expense, the company recognizes valuation allowances for tax loss and credit carryforwards, which may not be realized by utilizing a "more likely than not" approach which is more fully described in Note 11 - Provision for Income Taxes.
Minority Interest The impact to results of operations from minority interest was $17, $14 and $13 for 2002, 2001 and 2000, respectively. See also Note 14 - Minority Interest.
Discontinued Operations During 1999, the company completed the sale of its eyewear segment to Luxottica Group S.p.A. (Luxottica) for $636 in cash. The company recorded an after-tax gain on the disposal of discontinued operations of $126 or $2.16 per share. During 2000, Luxottica proposed certain purchase price adjustments related to the sale. On January 22, 2002, the company reached an agreement with Luxottica relative to the proposed adjustments. The net result of the resolution was an after-tax charge to discontinued operations of $21, or $0.39 per share. This amount was reported as a sale price adjustment related to disposal of discontinued operations in the fourth quarter of 2001. See also Note 3 - Discontinued Operations.
Income From Extraordinary Item
In 2001 and 2000, retirements of fixed-rate notes payable resulted in recognition of extraordinary gains of less than $0.1 and $1, net of taxes, respectively.Bausch & Lomb 33 Annual Report 2002
Restructuring Charges And Asset Write-offs
In 2002, 2001 and 2000, the company's Board of Directors approved plans to restructure certain of the company's business segments and corporate administrative functions. The company completed all actions under the 2001 Program as of December 28, 2002, and all actions under the 2000 Program as of December 29, 2001. These plans are described more fully in Note 5 - Restructuring Charges and Asset Write-offs, and include the company's programs to enhance its competitive position.
Profitability Improvement Program and Transfer of PureVision Contact Lens Manufacturing
In July 2002, the company announced plans to improve operating profitability through a comprehensive plan, approved by the company's Board of Directors, which included plant closures and consolidations; manufacturing efficiencies and yield enhancements; procurement process enhancements; the rationalization of certain contact lens and surgical product lines; distribution initiatives; and the development of a global information technology (IT) platform. These plans included the elimination of approximately 465 jobs worldwide associated with those actions. Restructuring charges and asset write-offs of $23 before taxes associated with these initiatives were recorded in the third quarter of 2002. The company also recorded a pre-tax amount of $4 during the third quarter of 2002 for severance associated with the elimination of approximately 145 jobs due to the transfer of PureVision extended wear contact lens manufacturing from the U.S. to Waterford, Ireland as a result of a ruling against the company in a U.S. patent lawsuit. The after-tax impact of these third quarter charges was $17 or $0.31 per share. (See Note 21 - Other Matters for discussion of current litigation relating to the PureVision contact lens product line.)
Cash outflows of approximately $17 are expected to occur primarily during the first and second quarters of 2003. The company anticipates that cash provided through operations will provide adequate funding for these actions. Actions in this restructuring plan are expected to be completed by the end of 2003.
These actions are expected to yield pre-tax cost savings of approximately $54 in 2004 and $90 annually beginning in 2005. These savings are expected to be realized primarily through reduced cost of products sold and selling, administrative and general expenses and are expected to be partially reinvested into R&D.
2001 Program
In December 2001, the company's Board of Directors approved a comprehensive restructuring plan designed to reduce ongoing operating costs by eliminating approximately 800 jobs on a global basis. As of December 29, 2001, management had identified actions and notified the appropriate personnel in what it considered Phase I of the restructuring program. As a result, a pre-tax amount of $8 was recorded during the fourth quarter of 2001 for Phase I of the restructuring and for asset write-offs. The after-tax impact of this charge was $6 or $0.10 per share. During the first quarter of 2002, a pre-tax amount of $24 was recorded for Phase II of the restructuring and additional asset write-offs. The after-tax impact of this charge was $15 or $0.28 per share. During the third quarter of 2002, the company reversed $1 pre-tax or $0.01 per share.
This program is expected to yield pre-tax cost savings of approximately $33 annually beginning in 2003. These savings are expected to be realized primarily through reduced cost of products sold and selling, administrative and general expenses. These savings are expected to be reinvested into R&D, marketing and other programs designed to accelerate sales growth.
2000 Program
In December 2000, the company's Board of Directors approved a comprehensive restructuring plan designed to facilitate the company's realignment as an integrated operating company with centralized management of R&D and supply chain operations and with commercial operations managed on a regional basis. The plan was implemented in two phases due to the anticipated timing of communication to employees and overall implementation schedule. As a result, a pre-tax amount of $43 was recorded during the fourth quarter of 2000 for Phase I of the restructuring and for asset write-offs. The after-tax impact of this charge was $28 or $0.50 per share. During the first quarter of 2001, a pre-tax amount of $17 was recorded for Phase II of the restructuring and additional asset write-offs. The after-tax impact of this charge was $11 or $0.20 per share. During the fourth quarter of 2001, the company reversed an after-tax amount of $3 or $0.05 per share.
This program yielded pre-tax cost savings of approximately $45 annually, a portion of which have been reinvested into R&D, marketing and other programs designed to accelerate sales growth.
Bausch & Lomb 34 Annual Report 2002
Purchased In-Process Research And Development
In connection with the acquisition of Groupe Chauvin, the company immediately expensed $24, representing amounts for IPR&D estimated at fair value using the methodology described below. The expensed IPR&D represented the value of projects that had not yet reached technological feasibility and for which the assets to be used in such projects had no alternative future uses (see Note 2 - Acquisitions). The company expects that products developed from the acquired IPR&D will begin to generate sales and positive cash flows in the time frames discussed in the following paragraphs. However, development of these technologies remains a risk due to the remaining effort to achieve technical viability, rapidly changing customer markets, uncertain standards for new products and competitive threats.
The company estimated the fair value of the purchased IPR&D using an income approach. Such methodology involved estimating the fair value of the purchased IPR&D using the present value of the estimated after-tax cash flows expected to be generated as a result of these projects and using risk-adjusted discount rates and revenue forecasts as appropriate. The selection of the 15% discount rate for all products was based on consideration of the company's weighted average cost of capital. A probability factor was then applied to the cash flow based on anticipated profitability levels of each project and the uncertainty surrounding successful development of each project. The amount expensed was also impacted by the percentage of completion for each project. The company expects to fund all R&D efforts, including acquired IPR&D, from cash flows from operations. Set forth below are descriptions of certain acquired IPR&D projects and the status of efforts to complet e the projects at December 28, 2002.
At the acquisition date, IPR&D was allocated to the following projects: Immobacter ($17), Carteol ($3), Other Pharmaceutical ($2) and Surgical ($2) products.
Immobacter - Revenues attributed to Immobacter, a preservative-free multidose delivery system, were expected to be generated by licensing the technology to other manufacturers. The royalty revenues were expected to be $4, $10 and $12 from 2004 through 2006 decreasing at an average rate of 5% thereafter. At the acquisition date, costs to complete the R&D efforts were expected to be $2. The probability factor and stage of completion used to derive the IPR&D amount were 70% and 49%, respectively. Due to the fact that the original configuration was not commercially viable, the probability factor has reduced from 70% to approximately 25%. However, the company also plans to generate revenue by selling directly additional products applying this technology and not relying exclusively on the generation of royalty revenue. Therefore, no change in revenue streams is expected.
Carteol - Revenues attributed to Carteol Long Acting, a glaucoma drug product extension that allows for once a day usage versus the current twice a day, were expected to be $3 in 2002, $6 in 2003, $7 in 2004 and $8 in 2005, with the rate of revenue growth then decreasing 5% annually in 2006 to 2010. At the acquisition date, costs to complete the R&D efforts were expected to be $1. The probability factor and stage of completion used to derive the IPR&D amount were 95% and 76%, respectively. Carteol was approved during 2002 in France, which represents a delay when compared to the original assumptions, and is expected to meet further regulatory approvals in other countries during 2004. Sales in 2002 were minimal (less than $0.5). Future sales have been revised and are expected to be $3 in 2003, $6 in 2004, $7 in 2005 and $8 in 2006, with the rate of revenue growth then decreasing 5% annually in 2007 to 2011.
Other Pharmaceutical Products - Revenues attributed to various miscellaneous pharmaceutical products, are expected to reach $4 by 2007, and then decrease by 3% each year through 2010. At the acquisition date, costs to complete the R&D efforts were expected to be $2. The average probability factor and stage of completion used to derive the IPR&D amount were 76% and 74%, respectively. Sales and gross margins relative to these pharmaceutical products have been lower than originally predicted due to a change in market conditions and an increase in competition. Future selling, marketing, distribution and R&D efforts have been reduced or discontinued. The reduction in revenues is not considered to have a material effect on the company's financial position.
Other Surgical Products - Revenues attributed to miscellaneous surgical products, were expected to reach $6 by 2006, with the rate of revenue growth then decreasing annually in the range of 2% to 3%. At the acquisition date, costs to complete the R&D efforts were expected to be $1. The average probability factor and stage of completion used to derive the IPR&D amount were 70% and 48%, respectively. Various other surgical products have either been canceled, scheduled for launch in 2003 or marketed. Any reduction in revenues due to cancellations is not considered to have a material effect on the company's financial position.
Liquidity And Financial Resources
The company's liquidity remains strong. Cash and cash equivalents were $465 and $534 at December 28, 2002 and December 29, 2001, respectively. During the fourth quarter of 2002, the company raised $150 in the public debt markets, the proceeds of which will be used primarily for general corporate purposes,
Bausch & Lomb 35 Annual Report 2002
including the refinancing of existing debt obligations. Subsequent to year end, the company replaced its $250 revolving credit agreement having an original expiration in January 2004, with a $400 agreement expiring in 2008. This back-up credit facility provides the company with enhanced financial flexibility.
Cash Flows From Operating Activities Cash provided by operating activities totaled $237 in 2002, an increase of $57 from 2001. The 2002 increase in cash flows from operating activities was driven primarily by higher net income, a decrease in inventories and a decrease in cash paid for interest and income taxes, partially offset by an increase in trade receivables.
Cash provided by operating activities totaled $179 in 2001, a decrease of $169 from 2000. Contributing to this result were lower net income, increases in inventory and deferred tax assets (due to an increase in tax loss and credit carryforwards), and a decrease in current income taxes payable. This decrease was partially offset by decreases in accounts receivable and other current assets.
Cash Flows From Investing Activities Net cash used in investing activities of $87 in 2002 resulted primarily from capital expenditures of $92 and a $23 sale price adjustment payment related to the disposal of a discontinued operation, which were partially offset by a cash inflow of $37 from the sale of the company's remaining equity interest in Charles River Laboratories.
In 2001, cash used in investing activities was $21. The cash outflow resulted primarily from $96 for capital expenditures and $49 for acquisitions of businesses and rights to certain pharmaceutical products, partially offset by the cash inflow of $30 from the sale of 51% of the company's original equity interest in the Charles River Laboratories business, as well as cash inflow of $97 from the exercise of an option on a Netherlands guilder investment where the majority of the company's equity position was put back to the issuer (see Note 10 - Other Short- and Long-Term Investments).
Cash used in investing activities was $183 in 2000. The cash outflow resulted from $253 for acquisitions and $95 for capital expenditures. These were partially offset by proceeds from the liquidation of an investment of equity securities and collection on a note receivable.
Cash Flows From Financing Activities Cash used in financing activities was $230 in 2002. During the second quarter of 2002, a payment of $200 was made related to the early termination of a minority interest obligation, as described in Note 14 - Minority Interest. Repayments of debt and net repayments of notes payable were $215. Proceeds from issuance of debt were $225. As described in Note 12 - Debt, the company issued $150 of five-year 6.95% fixed senior notes, the proceeds of which will be used for general corporate purposes, including the refinancing of existing debt obligations. The company also borrowed $75 against its revolving credit agreement during the second quarter of 2002, and repaid such borrowing during the third quarter of 2002, as discussed in Access to Financial Markets below.
Financing activities used $275 during 2001 primarily to repay $252 of long-term debt.
Cash used in financing activities during 2000 was $324. The purchase of 4,619,452 common shares during 2000 completed the stock buyback programs initiated in 1998 and 1999 and resulted in a cash outflow of $251. Additionally, the company reduced its debt by $44.
Evaluation of Liquidity The company evaluates its liquidity from several perspectives, including its ability to generate income, positive cash flows and free cash flow, its financial position, its access to financial markets and the adequacy of working capital levels. The company employs free cash flow as a performance metric and 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, settlement of minority interest obligations, stock repurchases, the acquisition or divestiture of businesses, the acquisition of intangible assets and the proceeds from the liquidation of certain investments. A reconciliation of cash flow to free cash flow is as follows:
2002 |
2001 |
|
Net change in cash and cash equivalents |
$ (69) |
$(126) |
Net cash used in financing activities |
230 |
275 |
Net cash paid for acquisitions of businesses and other intangibles, |
|
|
Proceeds from liquidation of other investments |
- |
(97) |
Free cash flow |
$191 |
$ 101 |
Bausch & Lomb 36 Annual Report 2002
Management views free cash flow as a useful measure of liquidity as it includes both cash flows from operating activities as well as the cash flows from investing activities that are generated or used by its segment operations. Therefore, this measure can be used to assess the company's ability to satisfy financing obligations and its ability to undertake possible future investing activities, such as acquisitions.
The company expects to generate between $130 and $150 in free cash flow in 2003. In the course of determining this projection management considers the impact of certain key drivers of free cash flow which include: collection of trade receivables and credit policies, inventory management, timing of tax and interest payments, capital expenditures, settlement of hedging contracts, pension funding and R&D milestones.
Financial Position The company's total debt, consisting of short- and long-term borrowings, was $844 and $827 at the end of 2002 and 2001, respectively. The ratio of total debt to capital was 45.3% and 45.9% at year-end 2002 and 2001, respectively. Cash and cash equivalents totaled $465 and $534 in 2002 and 2001, respectively. The decrease in cash from 2001 is primarily due to the payment of a $200 minority interest obligation, as described in Note 14 - Minority Interest, partially offset by positive cash flow from operating activities.
Certain tranches of the company's long-term debt due in 2013 and 2015 allowed remarketing agents to call the debt from the holders in 2003 and 2005, respectively, and in certain cases remarket the debt at a higher interest rate than the then current market rate. Following the company's debt rating being downgraded by Moody's Investors Service during March 2002, the agents exercised their right to put the marketing agreements back to the company. As a result of this action, the debt will mature in 2003 and 2005, respectively.
The company believes that it has adequate cash, credit facilities and access to the financial markets to meet all debt maturity requirements.
Contractual Cash Obligations At December 28, 2002, the company had the following contractual cash obligations due by the following periods:
|
Less than |
1 - 3 |
3 - 5 |
More than |
|
Contractual Obligations |
|||||
Notes Payable |
$ 1 |
$ 1 |
$ - |
$ - |
$ - |
Long-term debt obligations, including |
|
|
|
|
|
Minimum operating lease commitments |
48 |
17 |
20 |
9 |
2 |
Total |
$892 |
$205 |
$316 |
$161 |
$210 |
Access To Financial Markets The debt ratings as of December 28, 2002 by Standard & Poor's were at BBB- and A3, for long-term and short-term debt, respectively. On March 11, 2002, the company was downgraded by Moody's Investors Service as a result of its 2001 performance. The debt ratings by Moody's Investors Service, as of December 28, 2002, were Ba1 and Not-Prime for long-term and short-term debt, respectively.
As a result of the downgrade, certain financial transactions became available for termination at the option of the holder. These included an outside investor's limited partnership interest which was recorded as minority interest totaling $200; financing covering the company's World Headquarters facility of $63; and securitized trade receivables of $25. During March 2002, the outside partner exercised its put right for its $200 partnership interest as described in Note 14 - Minority Interest. The termination of the minority interest obligation and payment of the associated early liquidation premium occurred in May 2002. The payment was funded through existing cash reserves as well as the company's borrowing $75 against its then existing syndicated revolving credit agreement, which was repaid in July 2002. In addition, under their original payment terms, outstanding debt related to the securitized trade receivables was paid in March 2002, and the World Headquarters facil ity was paid at maturity by the company in December 2002.
In November 2002, the company issued $150 of five-year 6.95% fixed senior notes under a $500 Shelf Registration filed with the Securities and Exchange Commission in June 2002, of which $350 remained available for issuance as of December 28, 2002.
At December 28, 2002, the company had a $250 syndicated revolving credit agreement expiring in January 2004. Subsequent to year end, the company replaced this agreement with a five-year $400 syndicated revolving credit agreement. The new facility includes covenants similar to covenants contained in the former facility, which require the company to maintain certain EBITDA to interest and debt ratios. In the event of violation of the covenants, the facility would not be available for borrowing until the covenant provisions were waived, amended or satisfied. The company does not anticipate that a violation is likely to occur. In addition, the new agreement requires a reduction of the facility in the event the company issues public debt or equity or sells material U.S. assets. However, the facility does not require reduction below $250. The interest rate under the agreement is based on the company's credit rating and LIBOR, or the highest
Bausch & Lomb 37 Annual Report 2002
rate based on secondary certificates of deposit, Federal Funds or the base rate of one of the lending banks. There were no outstanding revolver borrowings as of December 28, 2002 or December 29, 2001. There were no covenant violations during 2002 or 2001. In addition, a number of subsidiary companies outside the U.S. have credit facilities to meet their liquidity requirements, under which outstanding borrowings as of December 28, 2002 were $1.4.
The company believes its existing credit facilities, in conjunction with the financing activities mentioned above, would provide adequate liquidity to meet obligations, fund capital expenditures and invest in potential growth opportunities.
Working Capital Working capital and the current ratio were $456 and 1.5, respectively, at year-end 2002 and $694 and 2.0, respectively, at year-end 2001. The decrease in working capital and the current ratio is attributable to a decrease in cash and cash equivalents, in part due to the payment of a $200 minority interest obligation, as described in Note 14 - Minority Interest, and the reclassification of long-term debt to current portion of long-term debt.
Dividends The dividends on Common stock, declared and payable quarterly, totaled $0.65 per share for the year ended 2002 and $1.04 per share for each of the years ended 2001 and 2000. Total cash dividends of $42, $56 and $57 were paid in 2002, 2001 and 2000, respectively. During April 2002, the Board of Directors approved a reduction in the quarterly dividend paid on shares of the company's Common stock from $0.26 per share to $0.13 per share effective for the quarterly dividend payable July 1, 2002.
Return On Equity And Capital Return on average Shareholders' equity was 7.4% in 2002, compared with 2.1% in 2001 and 7.9% in 2000. Return on invested capital was 6.0% in 2002, 3.1% in 2001 and 6.1% in 2000.
Off-Balance Sheet Arrangements
Strategic partnering arrangements entered into by the company to engage the research, development and commercialization of certain technologies may involve payments to the strategic partner for reimbursement of actual R&D activities as well as funding contingent upon the achievement of certain milestones such as completion of IND filings, clinical testing, NDA filings and FDA approvals.
The company has obligations under certain guarantees, letters of credit, indemnifications and other contracts that contingently require the company to make payments to guaranteed parties upon the occurrence of specified events. The company believes the likelihood is remote that material payments will be required under these contingencies, and that they do not pose potential risk to the company's future liquidity, capital resources and results of operations. See Note 16 - Commitments and Contingencies for further descriptions and discussions regarding the company's obligations.
Market Risk
The company, as a result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates that may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the company manages exposures to changes in interest rates and foreign currency exchange rates primarily through its use of derivatives. The company does not use financial instruments for trading or other speculative purposes, nor does it use leveraged financial instruments.
The company primarily uses foreign currency forward contracts to hedge foreign currency transactions and equity investments in non-U.S. subsidiaries. For contracts outstanding at the end of 2002, foreign currencies purchased were primarily British pounds, Hong Kong dollars, Japanese yen, euros and Swiss francs. Foreign currencies sold were primarily euros, Japanese yen, British pounds, Canadian dollars and Hong Kong dollars. With respect to 2001, foreign currencies purchased were primarily Singapore dollars, Swiss francs, Hong Kong dollars, British pounds and euros. The currencies sold were primarily euros, Swiss francs, Japanese yen, British pounds and Australian dollars. The magnitude and nature of such hedging activities are explained further in Note 17 - Financial Instruments. A sensitivity analysis to measure the potential impact that a change in foreign currency exchange rates would have on the company's net income indicates that, if the U.S. dollar strengthened against all foreign currencies by 10% the company would realize gains of approximately $32 and $46 on foreign currency forward contracts outstanding at year end 2002 and 2001, respectively. Such gains would be substantially offset by losses from the revaluation or settlement of the underlying positions hedged.
Bausch & Lomb 38 Annual Report 2002
The company may enter into interest rate swap, interest rate lock and cap agreements to effectively limit exposure to interest rate movements within the parameters of its interest rate hedging policy. For foreign currency denominated borrowing and investing transactions, cross-currency interest rate swap contracts may be used, which, in addition to exchanging cash flows derived from interest rates, exchange currencies at both inception and termination of the contract. There were no cross-currency interest rate swap contracts outstanding at December 28, 2002 or December 29, 2001. A sensitivity analysis to measure the potential impact that a change in interest rates would have on the company's net income indicates that a one-percentage point decrease in interest rates, which represents a greater than 10% change, would increase the company's net financial expense by approximately $5 and $2 based on 2002 and 2001 year-end positions, respectively.
Counterparties to the financial instruments discussed above expose the company to credit risks to the extent of non-performance. The credit ratings of the counterparties, which consist of a diversified group of major financial institutions, are regularly monitored and thus credit loss arising from counterparty non-performance is not anticipated.
Outlook
The company expects 2003 revenues to grow in the mid-single digits over the 2002 amounts. Upper-single-digit growth is expected in the contact lens category, which assumes continued strong growth in the company's newer technology product offerings, somewhat offset by the lack of PureVision contact lens sales in the U.S. In the lens care category the company anticipates low-single-digit growth, which is comparable to overall market trends. Growth rates experienced in the U.S. in 2002 are not expected to continue, as they were largely the result of an unusually low base in 2001. In pharmaceuticals the company projects mid-single-digit growth. Continued strong growth is expected from its lines of ocular vitamins, which will also benefit from geographic expansion in 2003. However, the company does not expect to continue to be the sole provider of multisource otic products in the U.S. and the re-entry of competition in this market, the impact in 2003 of its decision to exit certain non-strategic lines i n Europe, as well as pending pricing legislation in Germany, will partially mitigate these gains. Revenues from cataract and vitreoretinal surgery products are expected to increase in the upper-single-digits. The company expects to introduce, expand and enhance its IOL product lines and to begin the recovery of share it has lost over the past several years. As a result, it expects to report growth that is slightly above the overall cataract market trend in 2003. Lastly, the company anticipates low-single-digit growth in the refractive surgery category. This assumes that there is not a significant turnaround in the economy until at least late in the year, and does not assume any U.S. revenues from Zyoptix procedures until later in the year.
The company also expects to make continued progress against its three-year financial goals, and to post full-year operating margins in excess of 12%. Continued gross margin expansion is expected to be partially offset by higher R&D expense as a percent of sales, with selling, general and administrative expenses remaining at roughly the same percentage of sales in 2003 as in 2002.
Net financing expense should be in the range of $50, and the effective tax rate is expected to decrease from 34.5% to 34.0% for 2003.
As a result, the company expects to generate full-year earnings per share of approximately $2.05, with each quarter growing about 15%-20% over 2002 results, adjusted for restructuring charges and other special items highlighted in this Financial Review.
Lastly, the company expects to generate free cash flow of between $130 and $150, mainly due to earnings growth. Free cash flow will primarily be used to repay maturing debt obligations.
Critical Accounting Policies
The accompanying consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to management's discussion and analysis of financial condition and results of operations. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates and assumptions.
The company believes that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts. The impact and any associated risks related to these policies on its business operations are discussed below. Senior management has discussed the development and selection of the critical accounting estimates and the related disclosure included herein with the Audit Committee of the company's Board of Directors.
Bausch & Lomb 39 Annual Report 2002
Revenue Recognition The company recognizes revenue when it is realized or realizable and earned, based on terms of sale with the customer, generally upon product shipment, product delivery or customer acceptance. The terms and arrangements vary by product category, owing to the differing nature of the customers, channels and products across the categories. The company believes its revenue recognition policies are appropriate in all circumstances, and that its policies are reflective of complexities arising from customer arrangements. For the sale of multiple-element arrangements whereby equipment is combined with services, including maintenance and training, and other elements, such as supplies, the company allocates to and recognizes revenue from the various elements based on verifiable objective evidence of fair value. Revisions to these determinants of fair value would affect the timing of revenue allocated to the various elements in the arrangement and would impact the results of operations of the company. The company records estimated reductions to revenue for customer incentive programs offered including cash discounts, promotional and advertising allowances, volume discounts, contractual pricing allowances, rebates and specifically established customer product return programs. If market conditions were to change, the company may take actions to expand these customer offerings, which may result in incremental reductions to revenue. During both 2002 and 2001, reductions to revenue represented approximately 11% of gross customer sales.
Fair Value of Assets The company assesses the carrying value of its identifiable intangible assets, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying amount of the underlying asset may not be recoverable, or at least annually in the case of goodwill. Certain factors which may occur and indicate that an impairment exists include, but are not limited to: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of the company's use of the underlying assets; and significant adverse industry or market economic trends. In the event that the carrying value of assets are determined to be unrecoverable, the company would estimate the fair value of the assets or reporting unit and record an impairment charge for the excess of the carrying value over the fair value. The estimate of fair value requires management to make a number of assumptions and projections, which could include, b ut would not be limited to, future revenues, earnings and the probability of certain outcomes and scenarios. The company's policy is consistent with current accounting guidance as prescribed by SFAS No. 142, Goodwill and Intangible Assets and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. See Note 1 - Accounting Policies for a further discussion of SFAS No. 142 and SFAS No. 144. The company also assesses the fair value of identifiable intangible assets, long-lived assets, goodwill and purchased in-process research and development (IPR&D) at the inception of an acquisition. See Purchased In-Process Research And Development section of this Financial Review for a further discussion of IPR&D expensed in connection with a prior year's acquisition.
Provisions for Uncollectible Trade Receivables The company maintains provisions for uncollectible accounts for estimated losses resulting from the inability of its customers to remit payments. If the financial condition of customers were to deteriorate, thereby resulting in an inability to make payments, additional allowances could be required. The company performs ongoing credit evaluations of its customers and adjusts credit limits based upon customer payment history and current creditworthiness, as determined by the company's review of its customers' current credit information. The company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within the company's expectations and the provisions established, the company cannot guarantee that it will continue to experience the sa me credit loss rates that it has in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and financial health of specific customers. The company recorded $6, $5 and $8 in provisions to the Consolidated Statements of Income for doubtful accounts for the three years ended December 28, 2002, December 29, 2001 and December 30, 2000. The company considers all available information in its quarterly assessments of the adequacy of the reserves for uncollectible accounts. If the provision for uncollectible trade receivables were to change by one-percentage point of the company's gross trade receivables, operating income is estimated to increase or decrease by less than $5.
Bausch & Lomb 40 Annual Report 2002
Inventory Allowances The company provides estimated inventory allowances for excess, slow-moving and obsolete inventory as well as inventory whose carrying value is in excess of net realizable value. These reserves are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, additional inventory write-downs may be required. The company values its inventory at the lower of cost or net realizable market values. The company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on estimated forecasts of product demand and production requirements for the next twelve months. Several factors may influence the realizability of its inventories, including decisions to exit a product line, technological change and new product development. These factors could result in an increase in the amount of obsole te inventory quantities on hand. Additionally, estimates of future product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be understated or overstated. If in the future, the company determined that its inventory was overvalued, it would be required to recognize such costs in cost of sales at the time of such determination. Likewise, if the company determined that its inventory was undervalued, cost of sales in previous periods could have been overstated and the company would be required to recognize such additional operating income at the time of sale. While such inventory losses have historically been within the company's expectations and the provisions established, the company cannot guarantee that it will continue to experience the same loss rates that it has in the past. Therefore, although the company makes every effort to ensure the accuracy of forecasts of future product demand, including the impact of planned future product launches, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of its inventory and its reported operating results. The company recorded $17, $8 and $14 in provisions to the Consolidated Statements of Income for excess, slow-moving and obsolete inventory for the three years ended December 28, 2002, December 29, 2001 and December 30, 2000. At this time, management does not believe that anticipated product launches would have a material effect on the recovery of the company's existing net inventory balances. If the inventory allowance were to change by one-percentage point of the company's gross inventory, operating income is estimated to increase or decrease by less than $3.
Restructuring Actions Over the last several years the company has engaged in several significant restructuring actions, which have required the development of formalized plans as they relate to exit activities. These plans have required the company to utilize estimates related to severance and other employee separation costs, lease cancellations and other exit costs. Given the significance of, and the timing of the execution of such actions, this process is complex and involves periodic reassessments of estimates calculated at the time the original decisions were made. The accounting for restructuring costs and asset write-offs requires provisions and charges to be recorded when the company has a formal and committed plan. The company's policies, as supported by current authoritative guidance, require continuous evaluation of the adequacy of the remaining liabilities under the company's restructuring initiatives. As management continues to evaluate the business, there may be changes in estimates to amounts previously recorded as payments are made or actions are completed. Changes in estimates, positive or negative, have been recorded as an additional charge or reversal to restructuring expenses.
Deferred Tax Assets The company evaluates the recoverability of its deferred tax assets on an ongoing basis. This evaluation includes assessing the available positive and negative evidence surrounding this recoverability and estimating a valuation allowance. In determining the valuation allowance, the company has considered future taxable income and the feasibility of tax planning initiatives. Should the company determine that it is more likely than not it will realize certain of its deferred tax assets in the future, an adjustment would be required to reduce the existing valuation allowance and increase income. Alternatively, if the company determined that it would not be able to realize its recorded net deferred tax asset, an adjustment to increase the valuation allowance would be charged to the results of operations in the period such conclusion was made. In addition, the company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involv e complex issues, which may require an extended period of time for resolution. Although management believes that adequate consideration has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the results of operations of the company. Net increases (decreases) to the valuation allowance were $2, $23, and $(15) for the years ended December 28, 2002, December 29, 2001 and December 30, 2000.
Bausch & Lomb 41 Annual Report 2002
Employee Benefits The company's benefit plans consist of defined benefit pension plans, defined contribution plans and a participatory defined benefit postretirement plan. The assets, liabilities and related expense of these plans are determined on an actuarial basis and are affected by the estimated market-related value of plan assets, estimates of the expected return on plan assets, discount rates, rates of increase of health care costs, rates of future compensation increases and other assumptions inherent in these valuations. The company's actuarial consultants also use subjective factors such as withdrawal and mortality rates. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. The company annually reviews the assumptions underlying the actuarial calculations and makes changes to these assumptions as necessary. The following is a discussion of th e most significant estimates and assumptions used in connection with the company's employee benefit plans.
The expected return on plan assets for 2002 was 9%. This rate reflects the average rate of earnings expected on the funds invested to provide for the benefits included in the projected benefit obligation. This rate considers the actual performance of plan assets over the last 10 years and the investment policy of the company to invest plan assets in both equities and fixed income instruments to certain targeted levels. A one-percentage point change in the expected return on plan assets would result in an increase or decrease in employee benefit costs of approximately $2.
The discount rate used for 2002 was 6.5%. The discount rate reflects the rate at which employee benefits could be effectively settled and is developed in coordination with the company's actuaries. If the discount rate were to decrease by 1% for the U.S. benefit plans, which represent the majority of the total benefit plans, the plan liabilities would increase by approximately $25 and the expense would increase by approximately $2.5.
Assuming a constant employee base, the most important estimate associated with the company's postretirement plan is the assumed health care cost trend rate. A one-percentage point change in this estimate would increase or decrease the benefit obligation by approximately $8 and the expense would increase or decrease by approximately $0.5.
Based on the benefit plans' current assets and liabilities and using the current statutory minimum funding requirements and interest rates, the company would need to make contributions averaging approximately $25 by the end of 2004 and in each of the years 2005 through 2007. Any changes to the assumptions described above or statutory changes including the current IRS methodology would have a significant impact on this estimate.
Derivative Financial Instruments and Hedging Activity The company, as a result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates that may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the company manages exposures to changes in interest rates and foreign currency exchange rates primarily through its use of derivatives. The company enters into financial derivative instruments only for the purpose of minimizing those risks and thereby reducing volatility in income. Derivative instruments utilized as part of the company's risk management strategy may include interest rate swaps, locks and caps, and foreign currency forward exchange contracts and options. All derivatives are recognized on the balance sheet at fair value. The company establishes the fair value of its derivatives using quoted market prices, which is the preferred m ethod of establishing fair value as prescribed by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No. 133, collectively referred to as SFAS No. 133. The company uses the quoted market price of an instrument with similar characteristics if none exists for its derivative. Additionally, the company may also use prescribed valuation techniques such as discounted future cash flows, option pricing models or matrix pricing models to establish fair value in the event quoted market prices of the derivative or of an instrument with similar characteristics are not available. As of December 28, 2002, the fair value (also the carrying value) of foreign exchange instruments and interest rate instruments were net payables of $12 and $5, respectively. The company does not employ leveraged derivative instruments, nor does it enter into derivati ve instruments for trading or speculative purposes. In using derivative instruments, the company is exposed to credit risk. The company's derivative instrument counterparties are high quality investment or commercial banks with significant experience with such instruments. The company manages exposure to counterparty risk by requiring specific minimum credit standards and diversification of counterparties.
Bausch & Lomb 42 Annual Report 2002
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 remedial and investigatory activities at certain locations in which the company has been named the responsible party. At all such locations, the company believes such efforts will not have a materially adverse effect on its results of operations or financial position.
New Accounting Guidance In November 2001, the Emerging Issues Task Force (EITF) issued Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products effective for the first quarter of 2002. The purpose of Issue No. 01-09 was (a) to codify and reconcile the Task Force consensus positions on Issues No. 00-14, Accounting for Certain Sales Incentives, Issues 2 and 3 of Issue No. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future and No. 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products and (b) to identify other related interpretive issues that had not yet been addressed by the Task Force. The consensus reached by the Task Force presumes cash consideration given by a vendor to a customer is a reduction of the selling prices of the vendor's produc ts and should be characterized as a reduction of revenue when recognized in the income statement. The consideration should be characterized as a cost only if a benefit is or will be received from the recipient of the consideration and if the benefit meets certain conditions. This Issue does not alter the impact to the company as already considered in Issues No. 00-14 and 00-25. Under the new guidance, $46.4 and $53.7 were reclassified from selling, administrative and general expenses to a reduction in net sales for the years ended December 29, 2001 and December 30, 2000, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company has determined that legal obligations exist for certain leases of real property that contain clauses to reinstate the pre mises, requiring the removal of alterations made by the company during the lease term. The company will adopt SFAS No. 143 in the first quarter of 2003 and will record a charge of approximately $0.9 to cumulative change in accounting principle, net of tax.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 addresses the accounting model and resulting implementation issues for long-lived assets to be disposed of by sale or impaired while being held and used. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. This statement is effective for financial statements issued for fiscal years beginning after De cember 15, 2001. The company adopted SFAS No. 144 in the fiscal year beginning December 30, 2001 with no material effect on its financial position.
In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity is not prohibited from classifying such gains and losses as extraordinary items, so long as they meet the criteria outlined in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 145 also eliminates the inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. The company will adopt SFAS No. 145 in the fiscal year beginning December 29, 2002 and has determined that adoption will not have a material effect on its financial position.
Bausch & Lomb 43 Annual Report 2002
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 replaces EITF Issue No. 94-3. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The company will adopt SFAS No. 146, as applicable, in the fiscal year begi nning December 29, 2002.
In November 2002, the FASB published Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation expands on the accounting guidance of Statements No. 5, Accounting for Contingencies, No. 57, Related Party Disclosures, and No. 107, Disclosures about Fair Value of Financial Instruments, and incorporates without change the provisions of FASB Interpretation No. 34, Capitalization of Interest Costs, which is being superseded. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The company adopted the disclosure requirements of Interpretation No. 45 in the fiscal year beginning December 30, 2001. The company will adopt the recognition and measurement provisions of Interpretation No. 45, as applicable, in the fiscal year beginning December 29, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of SFAS No. 123. SFAS No. 148 provides guidance on alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. In addition, this statement amends Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects of stock-based compensation in interim financial information. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial state ments for interim periods beginning after December 15, 2002. The company sponsors several stock-based compensation plans, as described in Note 20 - Stock Compensation Plans, all of which are accounted for under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which requires all variable interest entities to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the variable interest entity. In addition, the Interpretation expands disclosure requirements for both variable interest entities that are consolidated as well as variable interest entities from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this Interpretation are effective for all periods beginning after June 15, 2003. The company is still evaluating the effect, if any, on its financial position.
Bausch & Lomb 44 Annual Report 2002
Information Concerning Forward-Looking Statements Forward-looking statements include statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts. When used in this discussion, the words "anticipate", "should", "expect", "estimate", "project", "will", "are likely" and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this report under the heading "Outlook" and elsewhere 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, which may affect 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 a nd uncertainties include, without limitation, the impact of competition, seasonality and general economic conditions in the global lens and lens care, ophthalmic cataract and refractive and pharmaceutical markets where the company's businesses compete, changes in global and localized economic and political conditions, effects of war or terrorism, changing currency exchange rates, events affecting the ability of the company to timely deliver its products to customers, including those which affect the company's carriers' ability to perform delivery services, changing trends in practitioner and consumer preferences and tastes, changes in technology, medical developments relating to the use of the company's products, legal proceedings initiated by or against the company, including those related to patents and other intellectual property held by the company, the impact of company performance on its financing costs, changes in government regulation of the company's products and operations, changes in governmental laws and regulations relating to the import and export of products, changes in private and regulatory schemes providing for the reimbursement of patient medical expenses, changes in the company's credit ratings, or the cost of access to sources of liquidity, the company's ability to maintain positive relationships with third party financing resources, the financial well-being and commercial success of key customers and suppliers, changes in the supply of raw materials used in the manufacture of the company's products, significant changes in tax rates or policies or in rates of inflation, changes in accounting principles and the application of such principles to the company, the performance by third parties upon whom the company relies for the provision of goods or services, the ability of the company to successfully execute marketing strategies, the ability of the company to secure and maintain intellectual property protections, including patent rights, with respect to key technologies, difficulties or delay s in the development, laboratory and clinical testing, regulatory approval, manufacturing, release or marketing of products, the successful completion and integration of acquisitions by the company, the successful relocation of certain manufacturing processes, the continued successful implementation of efforts in managing and reducing costs and expenses, the effect of changes within the company's organization, including the selection and development of the company's management team and such other factors as are described in greater detail in the company's filings with the Securities and Exchange Commission, including its 2002 Annual Report on Form 10-K and the Current Report on Form 8-K dated June 14, 2002.
Bausch & Lomb 45 Annual Report 2002
Statements Of Income
For The Years Ended |
|
|
|
Net Sales |
$1,816.7 |
$1,665.5 |
$1,718.7 |
Costs And Expenses |
|||
Cost of products sold |
797.1 |
763.7 |
746.9 |
Selling, administrative and general |
692.5 |
671.9 |
627.5 |
Research and development |
128.4 |
122.0 |
121.5 |
Purchased in-process research and development |
- |
- |
23.8 |
Restructuring charges and asset write-offs |
49.0 |
21.2 |
33.7 |
Other expense |
- |
- |
23.4 |
1,667.0 |
1,578.8 |
1,576.8 |
|
Operating Income |
149.7 |
86.7 |
141.9 |
Other (Income) Expense |
|||
Interest and investment income |
(44.9) |
(48.4) |
(52.3) |
Interest expense |
53.9 |
58.3 |
68.5 |
Loss (gain) from foreign currency, net |
3.7 |
(8.2) |
(11.4) |
Other income, net |
- |
- |
(23.6) |
12.7 |
1.7 |
(18.8) |
|
Income From Continuing Operations |
|
|
|
Provision for income taxes |
47.2 |
28.7 |
65.5 |
Income From Continuing Operations Before Minority Interest |
89.8 |
56.3 |
95.2 |
Minority interest in subsidiaries |
17.3 |
14.3 |
13.2 |
Income From Continuing Operations |
72.5 |
42.0 |
82.0 |
Discontinued Operations |
|||
Sale price adjustment related to disposal of discontinued |
|
|
|
Income Before Extraordinary Item |
72.5 |
20.9 |
82.0 |
Extraordinary Item |
|||
Gain on extinguishment of debt, net of taxes |
- |
- |
1.4 |
Income Before Change In Accounting Principle |
72.5 |
20.9 |
83.4 |
Change In Accounting Principle, Net Of Taxes |
- |
0.3 |
- |
Net Income |
$ 72.5 |
$ 21.2 |
$ 83.4 |
Basic Earnings (Loss) Per Share: |
|||
Continuing Operations |
$ 1.35 |
$ 0.78 |
$ 1.51 |
Discontinued Operations |
- |
(0.39) |
- |
Extraordinary Item |
- |
- |
0.03 |
Change In Accounting Principle |
- |
- |
- |
$ 1.35 |
$ 0.39 |
$ 1.54 |
|
Average Shares Outstanding - Basic (000s) |
53,832 |
53,578 |
54,162 |
Diluted Earnings (Loss) Per Share: |
|||
Continuing Operations |
$ 1.34 |
$ 0.78 |
$ 1.49 |
Discontinued Operations |
- |
(0.39) |
- |
Extraordinary Item |
- |
- |
0.03 |
Change In Accounting Principle |
- |
- |
- |
$ 1.34 |
$ 0.39 |
$ 1.52 |
|
Average Shares Outstanding - Diluted (000s) |
53,997 |
53,715 |
54,724 |
See Notes to Financial Statements
Bausch & Lomb 46 Annual Report 2002
Balance Sheets
December 28, 2002 and December 29, 2001 |
|
|
Assets |
||
Cash and cash equivalents |
$ 465.1 |
$ 534.4 |
Other investments, short-term |
- |
41.9 |
Trade receivables, less allowances of $25.6 and $20.7, respectively |
425.0 |
380.7 |
Inventories, net |
208.5 |
253.4 |
Deferred income taxes |
72.7 |
74.0 |
Other current assets |
113.4 |
112.9 |
Total Current Assets |
1,284.7 |
1,397.3 |
Property, Plant And Equipment, net |
537.5 |
543.3 |
Goodwill |
636.0 |
454.5 |
Other Intangibles, net |
226.8 |
384.5 |
Other Long-Term Assets |
86.5 |
96.6 |
Deferred Income Taxes |
136.3 |
117.3 |
Total Assets |
$2,907.8 |
$2,993.5 |
Liabilities And Shareholders' Equity |
||
Notes payable |
$ 1.4 |
$ 32.6 |
Current portion of long-term debt |
186.5 |
90.7 |
Accounts payable |
78.1 |
65.4 |
Accrued compensation |
93.5 |
80.7 |
Accrued liabilities |
375.8 |
359.0 |
Federal, state and foreign income taxes payable |
81.1 |
64.6 |
Deferred income taxes |
12.6 |
10.6 |
Total Current Liabilities |
829.0 |
703.6 |
Long-Term Debt, less current portion |
656.2 |
703.2 |
Deferred Income Taxes |
257.1 |
297.2 |
Other Long-Term Liabilities |
128.6 |
99.9 |
Minority Interest |
19.1 |
214.6 |
Total Liabilities |
1,890.0 |
2,018.5 |
Common Stock, par value $0.40 per share, 200 million shares authorized, |
|
|
Class B Stock, par value $0.08 per share, 15 million shares authorized, 729,764 |
|
|
Capital In Excess Of Par Value |
102.2 |
95.6 |
Common And Class B Stock In Treasury, at cost, 6,958,790 shares(7,081,412 shares in 2001) |
|
|
Retained Earnings |
1,298.9 |
1,261.4 |
Accumulated Other Comprehensive Loss |
(38.5) |
(36.0) |
Other Shareholders' Equity |
(9.1) |
(6.1) |
Total Shareholders' Equity |
1,017.8 |
975.0 |
Total Liabilities And Shareholders' Equity |
$2,907.8 |
$2,993.5 |
See Notes to Financial Statements
Bausch & Lomb 47 Annual Report 2002
Statements Of Cash Flows
For The Years Ended |
|
|
|
Cash Flows From Operating Activities |
|||
Net Income |
$ 72.5 |
$ 21.2 |
$ 83.4 |
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities |
|||
Depreciation |
105.2 |
106.5 |
105.8 |
Amortization |
24.9 |
48.6 |
41.9 |
Sale price adjustment related to disposal of discontinued operations |
- |
35.2 |
- |
Restructuring charges and asset write-offs |
49.0 |
21.2 |
33.7 |
Stock compensation expense |
7.3 |
1.1 |
5.6 |
Purchased in-process research and development |
- |
- |
23.8 |
Gain from sale of investments available-for-sale |
(18.1) |
(12.6) |
- |
Loss on retirement of fixed assets |
3.0 |
0.2 |
7.5 |
Changes In Assets And Liabilities |
|||
Trade receivables |
(27.1) |
35.0 |
24.3 |
Inventories |
57.1 |
(14.5) |
10.2 |
Deferred income taxes |
(59.5) |
(57.5) |
(17.1) |
Other current assets |
12.0 |
36.6 |
24.2 |
Other long-term assets |
23.4 |
(4.0) |
12.9 |
Accounts payable and accrued liabilities |
(31.9) |
(11.8) |
(9.4) |
Income taxes payable |
14.2 |
(11.9) |
23.5 |
Other long-term liabilities |
4.6 |
(14.0) |
(22.4) |
Net Cash Provided By Operating Activities |
236.6 |
179.3 |
347.9 |
Cash Flows From Investing Activities |
|||
Capital expenditures |
(91.9) |
(96.4) |
(95.0) |
Net cash paid for acquisition of businesses and other intangibles |
(7.1) |
(49.1) |
(253.3) |
Sale price adjustment related to disposal of discontinued operations |
(23.0) |
- |
- |
Proceeds from liquidation of other investments |
- |
97.3 |
166.2 |
Cash received from sale of investments available-for-sale |
37.4 |
29.5 |
- |
Other |
(2.3) |
(2.0) |
(0.8) |
Net Cash Used In Investing Activities |
(86.9) |
(20.7) |
(182.9) |
Cash Flows From Financing Activities |
|||
Termination of investor's interest in partnership |
(200.0) |
- |
- |
Repurchases of Common and Class B shares |
(0.8) |
(0.7) |
(251.0) |
Exercise of stock options |
2.4 |
5.1 |
27.6 |
Net (repayments of) proceeds from notes payable |
(32.1) |
12.2 |
(11.6) |
Repayment of debt |
(183.1) |
(251.9) |
(32.2) |
Proceeds from issuance of debt |
225.0 |
16.2 |
- |
Payment of dividends |
(41.8) |
(55.8) |
(56.9) |
Net Cash Used In Financing Activities |
(230.4) |
(274.9) |
(324.1) |
Effect of exchange rate changes on cash and cash equivalents |
11.4 |
(9.6) |
(7.7) |
Net Change In Cash And Cash Equivalents |
(69.3) |
(125.9) |
(166.8) |
Cash And Cash Equivalents, Beginning Of Year |
534.4 |
660.3 |
827.1 |
Cash And Cash Equivalents, End Of Year |
$465.1 |
$534.4 |
$660.3 |
Supplemental Cash Flow Disclosures |
|||
Cash paid for interest |
$ 52.7 |
$ 64.5 |
$ 67.9 |
Net cash payments for income taxes |
21.9 |
47.7 |
72.4 |
Supplemental Schedule Of Non-Cash Financing Activities |
|||
Consolidation of headquarters building due to change in financing structure |
- |
(63.2) |
- |
Consolidation of debt due to change in financing structure of headquarters |
|
|
|
See Notes to Financial Statements
Bausch & Lomb 48 Annual Report 2002
Statements Of Changes In Shareholders' Equity
For The Years Ended |
|||||||
|
Common |
|
|
|
Accumulated |
|
|
Balance at December 25, 1999 |
$1,234.0 |
$24.1 |
$ 89.6 |
$(150.1) |
$1,268.4 |
$ 9.0 |
$(7.0) |
Components of Comprehensive Income: |
|||||||
Net income |
83.4 |
- |
- |
- |
83.4 |
- |
- |
Currency translation adjustments |
(35.6) |
- |
- |
- |
- |
(35.6) |
- |
Unrealized holding gain 3 |
30.4 |
- |
- |
- |
- |
30.4 |
- |
Minimum additional pension liability |
(1.7) |
- |
- |
- |
- |
(1.7) |
- |
Total comprehensive income |
76.5 |
||||||
Net shares issued (canceled) under |
|
|
|
|
|
|
|
Treasury shares issued under employee |
|
|
|
|
|
|
|
Treasury shares repurchased |
|
|
|
|
|
|
|
Amortization of unearned compensation |
3.9 |
- |
- |
- |
- |
- |
3.9 |
Dividends 4 |
(55.9) |
- |
- |
- |
(55.9) |
- |
- |
Balance at December 30, 2000 |
1,039.4 |
24.1 |
94.0 |
(370.8) |
1,295.9 |
2.1 |
(5.9) |
Components of Comprehensive Income: |
|||||||
Net income |
21.2 |
- |
- |
- |
21.2 |
- |
- |
Currency translation adjustments |
(13.1) |
- |
- |
- |
- |
(13.1) |
- |
Transition adjustment - SFAS No. 133 |
(1.2) |
- |
- |
- |
- |
(1.2) |
- |
Net loss on cash flow hedges |
(0.6) |
- |
- |
- |
- |
(0.6) |
- |
Reclassification adjustment into net |
|
|
|
|
|
|
|
Unrealized holding gain 3 |
3.1 |
- |
- |
- |
- |
3.1 |
- |
Reclassification adjustment for net |
|
|
|
|
|
|
|
Minimum additional pension liability |
(13.6) |
- |
- |
- |
- |
(13.6) |
- |
Total comprehensive loss |
(16.9) |
||||||
Net shares (canceled) issued under |
|
|
|
|
|
|
|
Treasury shares issued under employee |
|
|
|
|
|
|
|
Treasury shares repurchased |
|
|
|
|
|
|
|
Amortization of unearned compensation |
4.4 |
- |
- |
- |
- |
- |
4.4 |
Dividends 4 |
(55.7) |
- |
- |
- |
(55.7) |
- |
- |
Balance at December 29, 2001 |
975.0 |
24.1 |
95.6 |
(364.0) |
1,261.4 |
(36.0) |
(6.1) |
Components of Comprehensive Income: |
|||||||
Net income |
72.5 |
- |
- |
- |
72.5 |
- |
- |
Currency translation adjustments |
56.9 |
- |
- |
- |
- |
56.9 |
- |
Net loss on cash flow hedges |
(11.5) |
- |
- |
- |
- |
(11.5) |
- |
Reclassification adjustment into net |
|
|
|
|
|
|
|
Unrealized holding loss 3 |
(2.8) |
- |
- |
- |
- |
(2.8) |
- |
Reclassification adjustment for net |
|
|
|
|
|
|
|
Minimum additional pension liability |
(30.6) |
- |
- |
- |
- |
(30.6) |
- |
Total comprehensive income 6 |
70.0 |
||||||
Net shares issued under |
|
|
|
|
|
|
|
Treasury shares issued under employee |
|
|
|
|
|
|
|
Treasury shares repurchased |
|
|
|
|
|
|
|
Amortization of unearned compensation |
3.0 |
- |
- |
- |
- |
- |
3.0 |
Dividends 4 |
(35.0) |
- |
- |
- |
(35.0) |
- |
- |
Balance at December 28, 2002 |
$1,017.8 |
$24.1 |
$102.2 |
$(359.8) |
$1,298.9 |
$(38.5) 7 |
$(9.1) |
1
There are also 10 thousand shares of $100 par value 4% cumulative preferred stock authorized, none of which has been issued.2
There are also 25 million shares of $1 par value Class A preferred stock authorized, none of which has been issued.3
Unrealized holding gain (loss) relates to an available-for-sale equity security recorded at market value.4
Cash dividends of $1.04 per share were declared on Common and Class B stock in each of the years 2000 and 2001. Cash dividends of $0.65 per share were declared on Common and Class B stock in 2002.5
Remaining shares of Charles River Laboratories sold during the first quarter of 2002 resulting in a realized gain as discussed in Note 10 - Other Short- and Long-Term Investments.6
Total comprehensive income as of December 28, 2002 is reported net of related tax effects. Amounts of income tax benefit (expense) for the components of other comprehensive loss are as follows: net loss on cash flow hedges, $6.1; reclassification adjustment for net loss on cash flow hedges, $(1.9); unrealized holding loss, $1.5; reclassification adjustment for net gains realized in net income, $9.5 and minimum additional pension liability, $16.1.7
Accumulated other comprehensive loss is $(38.5) at December 28, 2002 and includes the following accumulated income (loss) amounts: currency translation adjustment, $16.8; net loss on cash flow hedges, $(9.8); and minimum additional pension liability, $(45.5).See Notes to Financial Statements
Bausch & Lomb 49 Annual Report 2002
Notes To Financial Statements
Dollar Amounts In Millions - Except Per Share Data
1. Accounting Policies
Principles Of Consolidation The financial statements include all majority-owned U.S. and non-U.S. subsidiaries. Intercompany accounts, transactions and profits are eliminated. The fiscal year is the 52- or 53-week period ending the last Saturday in December.
Segment Reporting In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, the company reports its results consistent with the manner in which financial information is viewed by management for decision-making purposes.
The company's management structure is organized on a regional basis for commercial operations. The research and development and product supply functions of the company are managed on a global basis. The company's business segments are comprised of the Americas region, the Europe, Middle East and Africa region (Europe), the Asia region, the Research, Development and Engineering organization and the Global Supply Chain organization.
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, deferred income taxes and in valuing purchased intangible assets, including in-process research and development (IPR&D). Actual results could differ from those estimates.
In the fourth quarter of 2000, the company changed the method by which it estimates pricing allowances for its U.S. generic pharmaceutical products. The company had established reserves for contractual pricing allowances to certain of its customers using historical allowance patterns as submitted by the distributors who fulfill these contracts. The new methodology is based on more accurate and timely distributor inventory data. The company recorded $6.8 in the fourth quarter of 2000 for this change in accounting method, inseparable from a change in accounting estimate.
Cash Equivalents Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less.
Inventories Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method.
Property, Plant And Equipment Property, plant and equipment, including improvements that significantly add to productive capacity or extend useful life, are recorded at cost, while maintenance and repairs are expensed as incurred. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 30 to 40 years; machinery and equipment, two to ten years; and leasehold improvements, the shorter of the estimated useful life or the lease periods. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, as discussed below in New Accounting Guidance), the company assesses all long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Goodwill And Other Intangibles In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, which is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. Among other things, SFAS No. 141 requires that intangible assets be recognized apart from goodwill if they meet specific criteria. Goodwill and certain intangible assets acquired in transactions completed after June 30, 2001 have not been amortized. The company adopted SFAS No. 141 in the third quarter of 2001 with no material effect on the company's financial position.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 142 provides guidance on how to account for goodwill and intangible assets after the acquisition is complete. The most substantive change represented by this statement is that goodwill will no longer be amortized; instead, it will be tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The statement applies to existing goodwill and intangible assets,
Bausch & Lomb 50 Annual Report 2002
effective for fiscal years beginning after December 15, 2001. The company adopted SFAS No. 142 in the fiscal year beginning December 30, 2001.
Upon adoption of SFAS No. 142, the company analyzed existing intangible assets that had been recognized separately from goodwill and reclassified intangibles that did not meet the separate recognition criteria as prescribed in SFAS No. 141, Business Combinations, to goodwill. As such, $146.0 of intangibles, including assembled workforce and customer relationships, were reclassified to goodwill and $10.3 of deferred tax liabilities previously associated with those intangible assets were eliminated with a corresponding reduction in goodwill. Additionally, the company reassessed the useful lives of the remaining intangible assets and concluded that there were none with indefinite lives. As described in Note 9 - Acquired Intangible Assets, the company reduced the useful lives of certain acquired trade names and has applied the change in accounting estimate prospectively. The company determined that goodwill was not impaired based on a comparison of the carrying valu e of goodwill attributable to each of the company's reporting units (identified by the company to be its business segments) to their respective fair values. Fair value was based on the average of the indications of value derived from the income and market approaches, weighted equally. The income approach measured the fair value by discounted expected cash flows by reporting unit to their present value at a rate of return that is commensurate with their inherent risk. The market approach measured the fair value by analyzing and comparing the operating performance and financial condition of public companies within the ophthalmic pharmaceutical industry and companies subject to similar market conditions adjusted for differences in profitability, financial position, products and markets.
As described in Note 8 - Accounting for Goodwill and Intangibles, the company completed its annual impairment test on each of its reporting units during the fourth quarter of 2002 and determined that goodwill was not impaired. The company will perform interim impairment tests of goodwill if an event occurs or circumstances change that would more likely than not reduce the fair value of any of its reporting units below its carrying amount.
Revenue Recognition Revenues are recognized based on the terms of sale with the customer, generally upon product shipment, product delivery or customer acceptance. The company has established programs that, under specified conditions, enable customers to return product. The company establishes liabilities for estimated returns and allowances at the time revenues are recognized. In addition, accruals for customer discounts, rebates and estimated costs of warranties are recorded when revenues are recognized. Revenues from the sale of equipment under sales-type leases are recognized upon customer acceptance or at the inception of the lease. Revenues from equipment under operating leases are recognized over the lease term. Service revenues are derived primarily from service contracts on equipment sold to customers and are recognized over the term of the contracts while costs are recognized as incurred. For the sale of multiple-element arrangements whereby equipment is combined with services, including maintenance and training, and other elements, such as supplies, the company allocates to and recognizes revenues from the various elements based on verifiable objective evidence of fair value. Amounts billed to customers in sale transactions related to shipping and handling are classified as revenue. Net sales reflects reductions in gross revenues attributable to customer incentive programs offered including cash discounts, promotional and advertising allowances, volume discounts, contractual pricing allowances, rebates and specifically established customer product return programs.
In November 2002, the Emerging Issues Task Force (EITF) agreed to change the effective date of Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which addresses the accounting for multiple-element revenue arrangements, to fiscal periods beginning after June 15, 2003. The company's revenue recognition policy for multiple-element revenue arrangements was in accordance with Issue 00-21 at December 28, 2002, and, therefore, the company's results of operations will not be impacted. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which summarizes certain of the SEC's views in applying generally accepted accounting principles for revenue recognition in financial statements. The company's revenue recognition policies complied with the guidance contained in SAB No. 101 and, therefore, the company's results of operations were not materiall y affected.
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 expensed when the related revenues are recognized. At December 28, 2002 and December 29, 2001, $2.0 and $2.4 of deferred advertising costs, representing primarily production and design costs for advertising to be run in the subsequent fiscal year, were reported as other current assets. Advertising expenses for continuing operations of $165.6, $139.1 and $125.7 were included in selling, administrative and general expenses for 2002, 2001 and 2000, respectively. Prior-year amounts have been restated to reflect the adoption of EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products, as applicable, as discussed below in New Accounting Guidance.
Bausch & Lomb 51 Annual Report 2002
Stock Based Compensation At December 28, 2002, the company had several stock-based employee compensation plans, which are described more fully in Note 20 - Stock Compensation Plans. The company accounted for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. As all options granted under such plans had an exercise price equal to the market value of the underlying common stock on the date of grant, and given the fixed nature of the equity instruments, no stock-based employee compensation cost is reflected in net income. The effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123 (as discussed below in New Accounting Guidance), to stock-based employee compensation is as follows:
Net Income |
Basic Earnings Per Share |
Diluted Earnings Per Share |
|||||
As Reported |
Pro Forma |
As Reported |
Pro Forma |
As Reported |
Pro Forma |
||
2002 |
$72.5 |
$58.1 |
$1.35 |
$1.08 |
$1.34 |
$1.07 |
|
2001 |
21.2 |
8.4 |
0.39 |
0.15 |
0.39 |
0.15 |
|
2000 |
83.4 |
70.0 |
1.54 |
1.29 |
1.52 |
1.28 |
Comprehensive Income
As it relates to the company, comprehensive income is defined as net income plus the sum of currency translation adjustments, unrealized gains/losses on derivative instruments, unrealized holding gains/losses on securities and minimum pension liability adjustments (collectively "other comprehensive income") and is presented in the Statements of Changes in Shareholders' Equity.Investments In Debt And Equity Securities In 2001 and 2000, the company held one investment classified as available-for-sale in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and accordingly, any unrealized holding gains, net of taxes, were excluded from income and included as a component of other comprehensive income until realized. Fair value of the investment was determined based on market prices. During 2001 and the first quarter of 2002, the company liquidated 51% and 49%, respectively, of the investment and recorded a reclassification adjustment into earnings for net gains realized as described in Note 10 - Other Short- And Long-Term Investments.
Foreign Currency For most subsidiaries outside the U.S., the local currency is the functional currency, and translation adjustments are accumulated as a component of other comprehensive income. The accumulated income (expense) balances of currency translation adjustments, net of taxes, were $16.8, $(40.1) and $(26.6) at the end of 2002, 2001 and 2000, respectively.
For subsidiaries that operate in U.S. dollars and one subsidiary whose economic environment is highly inflationary, the U.S. dollar is the functional currency, and gains and losses that result from remeasurement are included in income. The risk related to this latter subsidiary is not considered material to the company's consolidated financial statements. The effects from foreign currency translation were gains of $4.6 and $1.1 in 2002 and 2001, respectively, and a loss of $1.7 in 2000.
The company hedges certain foreign currency transactions, firm commitments and net assets of certain non-U.S. subsidiaries by entering into forward exchange contracts. Gains and losses associated with currency rate changes on forward contracts hedging foreign currency transactions are recorded in income. The effects of foreign currency transactions, including related hedging activities, were a loss of $8.3 in 2002 and gains of $7.1 and $13.1 in 2001 and 2000, respectively.
Derivative Financial Instruments And Hedging Activity Effective January 1, 2001, the company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No. 133, collectively referred to as SFAS No. 133. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. Changes in the fair value of derivatives are recorded each period in current income or other comprehensive income, depending on their designation as a hedge of a particular exposure.
The company enters into financial derivative instruments only for the purpose of minimizing risk and thereby protecting income. Derivative instruments utilized as part of the company's risk management strategy may include interest rate swaps, locks and caps, and foreign currency forward exchange contracts and options. All derivatives are recognized on the balance sheet at fair value. The company does not employ leveraged derivative instruments, nor does it enter into derivative instruments for trading or speculative purposes.
Bausch & Lomb 52 Annual Report 2002
Upon entering into a derivative contract, the company designates, as appropriate, the derivative as a fair value hedge, cash flow hedge, foreign currency hedge or hedge of a net investment in a foreign operation. At inception, the company formally documents the relationship between the hedging instrument and underlying hedged item, as well as risk management objective and strategy. Specifically, this procedure will link the hedging instrument to recognized assets or liabilities on the balance sheet or to explicit firm commitments or forecasted transactions. In addition, the company assesses, both at inception and on an ongoing basis, whether the derivative used in a hedging transaction is highly effective in offsetting changes in the fair value or cash flow of the respective hedged item. When it is determined that a derivative is no longer highly effective as a hedge, the company will discontinue hedge accounting prospectively.
In using derivative instruments, the company is exposed to credit risk. The company's derivative instrument counterparties are high quality investment or commercial banks with significant experience with such instruments. The company manages exposure to counterparty risk by requiring specific minimum credit standards and diversification of counterparties.
The company will generally enter into interest rate swap agreements to limit its exposure to interest rate movements within the parameters of its interest rate hedging policy. This allows for interest rate exposures from floating-rate assets to be offset by a substantially similar amount of floating rate liabilities. When appropriate, interest rate derivatives may be used to readjust this natural hedge position.
Fair value hedges may be employed by the company to hedge changes in the fair value of recognized financial assets or liabilities or unrecognized firm commitments. This is usually accomplished by entering into interest rate swaps converting fixed-rate long-term investments or debt to a floating rate. Changes in the fair value of the derivative instrument and the hedged item attributable to the hedged risk are recognized in income, and will generally offset each other. The company attempts to structure fair value hedges so as to qualify for the shortcut method of hedge effectiveness analysis, thereby assuming no ineffectiveness in the hedge relationship. Specifically, the company seeks to ensure that the critical terms of the interest rate swap and the hedged item are identical, the swap value is zero at inception, settlement calculations are consistent throughout the term of the swap and no floors or caps exist on the swap variable rate. In the event it is determined that the hedging relationship no longer qualifies as an effective fair value hedge, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recorded in income. Upon termination of a derivative in an effective fair value hedge, any associated gain or loss will be an adjustment to income over the remaining life of the hedged item, if any.
The company may implement cash flow hedges to protect itself from variability in cash flows associated with recognized variable-rate assets or liabilities or forecasted transactions. This may be accomplished by entering into interest rate swaps converting the hedged item from a floating rate to a fixed rate. Changes in the fair value of the hedging derivative are initially recorded in other comprehensive income, then recognized in income in the same period(s) in which the hedged transaction affects income. The company attempts to structure cash flow hedges so as to qualify for the shortcut method of hedge effectiveness analysis, thereby assuming no ineffectiveness in the hedge relationship. Specifically, the company seeks to ensure that the critical terms of the interest rate swap and the hedged item are identical, the swap value is zero at inception, settlement calculations are consistent throughout the term of the swap, no floors or caps exist on the swap variable rate, and variable rate repricing dates and indexes are comparable. In the event it is determined that the hedging relationship no longer qualifies as an effective cash flow hedge, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recorded in income. If hedge accounting is discontinued because it is probable a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recorded in income, and any amounts previously recorded in other comprehensive income will immediately be recorded in income.
The company uses principally foreign currency forward contracts to hedge foreign exchange exposures. The portfolio of contracts is adjusted at least monthly to reflect changes in exposure positions as they become known. When possible and practical, the company matches the maturity of the hedging instrument to that of the underlying exposure. Net settlements are generally made at contract maturity based on rates agreed to at contract inception.
The company will enter into foreign currency derivatives to protect itself from variability in cash flows associated with recognized foreign currency denominated assets or liabilities or forecasted transactions. Changes in the fair value of the hedging derivative are initially recorded in other comprehensive income, then recognized in income in the same period(s) in which the hedged transaction affects income.
The company has numerous investments in foreign subsidiaries, and the net assets of these subsidiaries are exposed to currency exchange rate volatility. To hedge this exposure the company may utilize foreign currency forward exchange contracts, generally with maturities of approximately three months. Net investment hedges are implemented for material subsidiaries on a selective basis. The effective portion of the change in fair value of the hedging instrument is reported in the same manner as the translation adjustment for the hedged subsidiary; that is, reported in the cumulative translation adjustment section of other comprehensive income.
Bausch & Lomb 53 Annual Report 2002
The fair value of the derivative attributable to changes between the forward rate and spot rate is excluded from the measure of hedge effectiveness and that difference is reported in income over the life of the contract. Quarterly, the company evaluates its hedges of net investments in foreign subsidiaries for effectiveness and adjusts the value of hedge instruments or redesignates the hedging relationship accordingly.
The company enters into foreign currency forward exchange contracts, with terms normally lasting less than six months, to hedge against foreign currency transaction gains and losses on foreign currency denominated assets and liabilities based on changes in foreign currency spot rates. Although allowable, a hedging relationship for this risk has not been designated, as designation will not achieve different financial reporting results. Foreign currency forward exchange contracts within this category are carried on the balance sheet at fair value, with changes in fair value recorded in income.
New Accounting Guidance In November 2001, the EITF issued Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products effective for the first quarter of 2002. The purpose of Issue No. 01-09 was (a) to codify and reconcile the Task Force consensus positions on Issues No. 00-14, Accounting for Certain Sales Incentives, Issues 2 and 3 of Issue No. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future and No. 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products and (b) to identify other related interpretive issues that had not yet been addressed by the Task Force. The consensus reached by the Task Force presumes cash consideration given by a vendor to a customer is a reduction of the selling prices of the vendor's products and should be characterize d as a reduction of revenue when recognized in the income statement. The consideration should be characterized as a cost only if a benefit is or will be received from the recipient of the consideration and if the benefit meets certain conditions. This Issue does not alter the impact to the company as already considered in Issues No. 00-14 and 00-25. Under the new guidance, $46.4 and $53.7 were reclassified from selling, administrative and general expenses to a reduction in net sales for the years ended December 29, 2001 and December 30, 2000, respectively.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company has determined that legal obligations exist for certain leases of real property that contain clauses to reinstate the premises, requiring the removal of alterat ions made by the company during the lease term. The company will adopt SFAS No. 143 in the first quarter of 2003 and will record a charge of approximately $0.9 to cumulative change in accounting principle, net of tax.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 addresses the accounting model and resulting implementation issues for long-lived assets to be disposed of by sale or impaired while being held and used. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. This statement is effective for financial statements issued for fiscal years beginning after De cember 15, 2001. The company adopted SFAS No. 144 in the fiscal year beginning December 30, 2001 with no material effect on its financial position.
In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity is not prohibited from classifying such gains and losses as extraordinary items, so long as they meet the criteria outlined in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 145 also eliminates the inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. The company will adopt SFAS No. 145 in the fiscal year beginning December 29, 2002 and has determined that adoption will not have a material effect on its financial position.
Bausch & Lomb 54 Annual Report 2002
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 replaces EITF Issue No. 94-3. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The company will adopt SFAS No. 146, as applicable, in the fiscal year begi nning December 29, 2002.
In November 2002, the FASB published Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation expands on the accounting guidance of Statements No. 5, Accounting for Contingencies, No. 57, Related Party Disclosures, and No. 107, Disclosures about Fair Value of Financial Instruments, and incorporates without change the provisions of FASB Interpretation No. 34, Capitalization of Interest Costs, which is being superseded. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The company adopted the disclosure requirements of Interpretation No. 45 in the fiscal year beginning December 30, 2001. The company will adopt the recognition and measurement provisions of Interpretation No. 45, as applicable, in the fiscal year beginning December 29, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of SFAS No. 123. SFAS No. 148 provides guidance on alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. In addition, this statement amends Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods be ginning after December 15, 2002. The company sponsors several stock-based compensation plans, as described in Note 20 - Stock Compensation Plans, all of which are accounted for under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which requires all variable interest entities to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the variable interest entity. In addition, the Interpretation expands disclosure requirements for both variable interest entities that are consolidated as well as variable interest entities from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this Interpretation are effective for all periods beginning after June 15, 2003. The company is still evaluating the effect, if any, on its financial position.
Reclassifications Certain amounts in the Balance Sheets have been reclassified to maintain comparability among the periods presented.
2. Acquisitions
Groupe Chauvin Acquisition
On August 8, 2000, the company completed the acquisition of Groupe Chauvin, a European-based ophthalmic pharmaceuticals company headquartered in Montpellier, France, and several related companies with operations in France, Germany, the U.K., Switzerland, the Benelux countries, and Portugal, for a total of approximately $218.0, net of cash acquired. The company financed the acquisition through the use of cash reserves generated offshore.
The acquisition was accounted for as a purchase, whereby the purchase price, including acquisition costs, was allocated to identified assets, including tangible and intangible assets, purchased IPR&D and
Bausch & Lomb 55 Annual Report 2002
liabilities based upon their respective fair values. The excess of the purchase price over the value of identified assets and liabilities has been recorded as goodwill and was amortized on a straight-line basis using a twenty-five year life through December 29, 2001. Amortization of goodwill ceased resulting from the company's adoption of SFAS No. 142 effective December 30, 2001 as described in Note 8 - Accounting for Goodwill and Intangibles.
The useful lives of identifiable intangibles and goodwill were determined based upon an evaluation of pertinent factors, including consideration of legal, regulatory and contractual provisions which could limit the maximum useful life and management's judgment, and in some instances, the reports of independent appraisers. The remaining useful lives of trade names associated with the Groupe Chauvin acquisition were reduced from 29 years to 15 years effective December 30, 2001 as discussed in Note 9 - Acquired Intangible Assets.
As required under generally accepted accounting principles, IPR&D of $23.8 identified in the acquisition was expensed immediately, resulting in a non-cash charge to earnings, since the underlying R&D projects had not reached technological feasibility and the assets to be used in such projects had no alternative future use.
There were eight product development projects included in the $23.8 pre-tax charge to IPR&D. The projects were unique from other pre-existing core technology and pertained primarily to the development of new or redesigned ophthalmic pharmaceutical drug products and products that support eye surgery procedures. The company engaged an outside appraiser who estimated the fair value of the purchased IPR&D using an income approach. Such methodology involved estimating the fair value of the purchased IPR&D using the present value of the estimated after-tax cash flows expected to be generated as a result of these projects using risk-adjusted discount rates and revenues forecasts as appropriate. The selection of a 15% discount rate for all products was based on consideration of the company's weighted average cost of capital. A probability factor was then applied to the cash flow based on anticipated profitability levels of each project and the uncertainty surrounding succ essful development of each project. The amount expensed was also impacted by the percentage of completion for each project. The company expects to fund all R&D efforts, including acquired IPR&D, from cash flow from operations. There have been no significant changes to the projects or the assumptions and estimates associated with IPR&D.
Management is primarily responsible for estimating the fair value of assets and liabilities obtained through acquisitions and has conducted due diligence in determining fair values. Management made estimates and assumptions at the time of the acquisition that affect the reported amounts of assets, liabilities and expenses, including IPR&D, resulting from such an acquisition. Actual results could differ from those amounts. During 2001, the accrual for acquisition related activities was increased by $11.2 as described in the Accrual for Exit Activities section below. During 2001 and 2002, there were no other material changes to estimated fair values of assets and liabilities.
Accrual for Exit Activities As part of the integration of Groupe Chauvin, management developed a formal plan that included the shutdown of duplicate facilities in Europe and the consolidation of certain functional areas. The exit activities were committed to by management and formally communicated to the affected employees during the fourth quarter of 2000. The acquisition accrual at December 30, 2000 related to the cost of terminating jobs in R&D, selling and administration. The other costs represented leasehold and vehicle termination payments. Additional accruals representing closures and consolidations of functions and locations were recorded in 2001, resulting in an adjustment to goodwill. These exit activities were communicated to the affected employees in 2001 and were completed by December of 2002. The acquisition accrual anticipated the termination of approximately 266 jobs. At the conclusion of the program, 220 jobs had been eliminated with $14.2 of related costs being charged against the liability. The major components of the accrual were as follows:
Costs of Exit Activities |
|||
Employee |
|
|
|
Acquisition accrual |
$ 2.6 |
$ 0.4 |
$ 3.0 |
Less cash payments made in 2000 |
(0.3) |
- |
(0.3) |
Balances at December 30, 2000 |
2.3 |
0.4 |
2.7 |
Additional accruals |
11.1 |
0.1 |
11.2 |
Less cash payments made in 2001 |
(8.5) |
(0.4) |
(8.9) |
Balances at December 29, 2001 |
4.9 |
0.1 |
5.0 |
Less cash payments made in 2002 |
(4.9) |
(0.1) |
(5.0) |
Balances at December 28, 2002 |
$ - |
$ - |
$ - |
Bausch & Lomb 56 Annual Report 2002
Since its acquisition, Groupe Chauvin has successfully been integrated into the Europe, Middle East and Africa region (Europe), the Research, Development and Engineering organization and the Global Supply Chain organization.
Pharmos Product Rights Acquired
During the fourth quarter of 2001, the company announced the acquisition of all rights to the loteprednol etabonate ophthalmic pharmaceutical products of Pharmos Corporation. The company paid an initial amount of approximately $25.5 for rights to two prescription anti-inflammatory ophthalmic drops, Lotemax and Alrex, manufactured and marketed by the company under a previous marketing agreement. The company expects to pay additional amounts, up to approximately $23.3, depending on market introduction and success of a new product currently in the clinical trial stage.
3. Discontinued Operations
On June 26, 1999, the company completed the sale of its eyewear segment to Luxottica Group S.p.A. (Luxottica) for $636.0 in cash. The company recorded an after-tax gain on the disposal of discontinued operations of $126.3 or $2.16 per diluted share, which included the costs associated with exiting the business, such as severance pay and additional pension costs.
During 2000, Luxottica proposed certain purchase price adjustments in connection with this transaction. On January 22, 2002, the company reached an agreement with Luxottica relative to these proposed adjustments. The net result of the resolution was an after-tax charge to discontinued operations of $21.1 ($0.39 per diluted share), which was reported as a 2001 sale price adjustment related to disposal of discontinued operations in the accompanying Statements of Income. The net cash impact of this settlement was a $23.0 payment to Luxottica in January 2002.
4. Earnings Per Share
Basic earnings per share is computed based on the weighted average number of Common and Class B shares outstanding during a period. Diluted earnings per share reflect the assumed conversion of dilutive stock options and forward purchase agreements. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options were considered to have been used to repurchase common shares at average market prices for the period, and the resulting net additional common shares are included in the calculation of average common shares outstanding.
The following table summarizes the amounts used to calculate basic and diluted earnings per share:
(Dollar Amounts In Millions, Share Data In Thousands) |
2002 |
2001 |
2000 |
Income from continuing operations |
$72.5 |
$42.0 |
$82.0 |
Sale price adjustment related to disposal of discontinued |
|
|
|
Gain on extinguishment of debt, net |
- |
- |
1.4 |
Change in accounting principle, net |
- |
0.3 |
- |
Net Income |
$72.5 |
$21.2 |
$83.4 |
Common shares - basic |
53,832 |
53,578 |
54,162 |
Effect of dilutive securities |
165 |
137 |
562 |
Common shares - diluted |
53,997 |
53,715 |
54,724 |
|
|
|
|
Bausch & Lomb 57 Annual Report 2002
5. Restructuring Charges And Asset Write-offs
Profitability Improvement Program and Transfer of PureVision Manufacturing
In July 2002, the company announced plans to improve operating profitability through a comprehensive plan which included plant closures and consolidations; manufacturing efficiencies and yield enhancements; procurement process enhancements; the rationalization of certain contact lens and surgical product lines; distribution initiatives; and the development of a global information technology (IT) platform. These plans included the elimination of approximately 465 jobs worldwide associated with those actions. Restructuring charges and asset write-offs of $22.8 before taxes associated with these initiatives were recorded in the third quarter of 2002. The company also recorded a pre-tax amount of $3.7 during the third quarter of 2002 for severance associated with the elimination of approximately 145 jobs due to the transfer of PureVision extended wear contact lens manufacturing from the U.S. to Waterford, Ireland following a ruling against the company in a U.S. patent lawsuit. (See Note 21 - Other Matters for discussion of current litigation relating to the PureVision contact lens product line.)
The following table summarizes the activity for the Profitability Improvement Program and the transfer of PureVision manufacturing:
|
|
|
|
Net charge during 2002 |
$23.1 |
$ 3.4 |
$26.5 |
Asset write-offs during 2002 |
- |
(3.4) |
(3.4) |
Cash payments during 2002 |
(6.0) |
- |
(6.0) |
Remaining reserve at December 28, 2002 |
$17.1 |
$ - |
$17.1 |
As of December 28, 2002, 201 jobs had been eliminated under this restructuring plan with $6.0 of related costs being charged against the liability. Actions in this restructuring plan are expected to be completed by the end of 2003. In addition to job eliminations, the above actions resulted in $3.4 of asset write-offs for machinery and equipment. The disposition and/or decommissioning of these assets occurred in the third quarter of 2002.
2001 Program
In December 2001, the company's Board of Directors approved a widespread restructuring plan designed to reduce ongoing operating costs by eliminating approximately 800 jobs on a global basis. The restructuring plan was implemented in two phases due to anticipated timing of communication to employees and overall implementation schedule. As a result, a pre-tax amount of $8.3 was recorded during the fourth quarter of 2001 for Phase I of the restructuring and for asset write-offs. During the first quarter of 2002, a pre-tax amount of $23.5 was recorded for Phase II of the restructuring and additional asset write-offs.
In addition to employee terminations, the above actions resulted in $3.9 of asset write-offs for machinery and equipment ($1.5), goodwill related to the contact lens manufacturing plant in Madrid, Spain ($0.8) and an equity investment in a manufacturer of patented MicroBarrier technologies, intended to benefit the company's lens care and over-the-counter pharmaceutical product lines ($1.6). The disposition and/or decommissioning of these assets occurred in the fourth quarter of 2001. During the first quarter of 2002, an additional asset write-off of $0.4 was recorded for machinery and equipment that was disposed and/or decommissioned in that quarter.
The restructuring actions were estimated to result in the elimination of approximately 800 jobs. At the conclusion of the program, 752 jobs had been eliminated under this restructuring plan with $26.5 of related costs being charged against the liability. All actions related to this restructuring plan were completed as of December 28, 2002.
During the third quarter of 2002, the company reversed $1.0 of severance and other costs that were not required. The reversal resulted from the cessation of certain actions originally contemplated as well as employee resignations for which severance payments will not be made.
Bausch & Lomb 58 Annual Report 2002
The following table summarizes the activity for the 2001 program:
Severance and |
|
|
|
Net charge during 2001 |
$ 4.4 |
$ 3.9 |
$ 8.3 |
Asset write-offs during 2001 |
- |
(3.9) |
(3.9) |
Cash payments during 2001 |
(0.2) |
- |
(0.2) |
Remaining reserve at December 29, 2001 |
4.2 |
- |
4.2 |
Net charge during 2002 |
23.1 |
0.4 |
23.5 |
Asset write-offs during 2002 |
- |
(0.4) |
(0.4) |
Cash payments during 2002 |
(26.3) |
- |
(26.3) |
Reversal of reserve not required |
(1.0) |
- |
(1.0) |
Remaining reserve at December 28, 2002 |
$ - |
$ - |
$ - |
2000 Program
By the end of 2001, the company had completed all actions related to a restructuring program announced in December 2000. The company's Board of Directors approved a comprehensive restructuring plan that would facilitate the company's realignment as an integrated operating company with centralized management of R&D and supply chain operations and with commercial operations managed on a regional basis. The restructuring plan was implemented in two phases due to the anticipated timing of communication to employees and overall implementation schedule. As a result, a pre-tax amount of $42.7 was recorded during the fourth quarter of 2000 for Phase I of the restructuring action and for asset write-offs. During the first quarter of 2001, a pre-tax amount of $16.9 was recorded for Phase II of the restructuring action and additional asset write-offs.
The restructuring program anticipated the termination of approximately 800 jobs. At the conclusion of the program, 705 jobs had been terminated under this restructuring plan with $28.7 of related costs being charged against the liability. In addition to employee terminations, the above actions resulted in $20.4 of asset write-offs for machinery and equipment ($11.1), facilities ($6.9) and abandoned software ($2.4). The disposition and/or decommissioning of these assets occurred in the fourth quarter of 2000. During 2001, the company wrote off its $6.5 investment in a business-to-business e-commerce venture for the vision care industry.
During the fourth quarter of 2001, the company reversed $4.0 of severance and other costs that were not required. The reversal was primarily the result of costs related to employee severance being lower than originally anticipated, in addition to employee resignations.
6. Business Segment And Geographic Information
The company is organized on a regionally based management structure for commercial operations. The research and development and product supply functions of the company are managed on a global basis. The company's segments are comprised of the Americas region, the Europe, Middle East and Africa region (Europe), the Asia region, the Research, Development and Engineering organization and the Global Supply Chain organization.
Operating income is the primary measure of segment income. No items below operating income are allocated to segments. Restructuring charges and charges related to certain significant events, although related to specific segments, are also excluded from management basis results. The accounting policies used to generate segment results are the same as the company's overall accounting policies. Inter-segment sales were $445.2, $515.6, and $473.6 for the years ended December 28, 2002, December 29, 2001 and December 31, 2000, respectively. All inter-segment sales have been eliminated upon consolidation.
Bausch & Lomb 59 Annual Report 2002
In each geographic segment the company markets products in five product categories: contact lens, lens care, pharmaceuticals, cataract and vitreoretinal, and refractive. The contact lens category includes traditional, planned replacement disposable, daily disposable, multifocal, continuous wear and toric soft lenses and rigid gas permeable contact lenses. The lens care category includes multi-purpose solutions, enzyme cleaners and saline solutions. The pharmaceuticals category includes generic and proprietary prescription ophthalmic drugs, ocular vitamins, over-the-counter medications and vision accessories. The cataract and vitreoretinal category includes products and equipment used for cataract and vitreoretinal surgery. The refractive category includes lasers, microkeratomes, diagnostic equipment and other products and equipment used in refractive surgery. There are no transfers of products between product categories. The following table presents sales by product category for the years 2002, 2001 and 2000:
2002 |
2001 |
2000 |
|
Net Sales |
Net Sales 1 |
Net Sales 1 |
|
Product Category |
|||
Contact Lens |
$ 523.9 |
$ 462.7 |
$ 475.8 |
Lens Care |
465.5 |
415.9 |
488.3 |
Pharmaceuticals |
396.1 |
344.7 |
279.4 |
Cataract and Vitreoretinal |
301.8 |
304.2 |
308.2 |
Refractive |
129.4 |
138.0 |
167.0 |
$1,816.7 |
$1,665.5 |
$1,718.7 |
1
Amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.The company adopted the management structure described above effective as of January 1, 2001. During the first quarter of 2002, the company reevaluated the measures and management data used in decision making to ensure it continued to be properly aligned with the company's strategic objectives. As a result of the review, goodwill arising from vertically integrated acquisitions, product technology, other non-customer related intangibles and the associated amortization expense were reclassified to the Global Supply Chain segment to more accurately reflect their contribution to the company's return on net operating assets. The following table of segment net sales, operating income, depreciation and amortization, capital expenditures and assets reflects the reclassification.
Segment assets for the three geographic regions represent operating assets of the U.S. and non-U.S. commercial entities mainly comprised of net trade receivables, net inventories, net property, plant and equipment, goodwill, net intangibles and other current and long-term assets. In the Research, Development & Engineering segment, assets are comprised of net property, plant and equipment and other current and long-term assets. Assets in the Global Supply Chain segment include net inventories, net property, plant and equipment, goodwill, net intangibles, other investments and other current and long-term assets. Corporate administration assets are mainly cash and cash equivalents, deferred income taxes, net property, plant and equipment and other current and long-term assets not allocated to other segments.
Bausch & Lomb 60 Annual Report 2002
Business Segment The following table presents sales and other financial information by business segment for the years 2002, 2001 and 2000:
|
|
Depreciation |
|
|
|
2002 |
|||||
Americas |
$ 844.1 |
$247.9 |
$ 18.3 |
$ 9.9 |
$ 264.5 |
Europe |
613.1 |
154.9 |
14.0 |
14.2 |
313.5 |
Asia |
359.5 |
106.4 |
6.6 |
5.3 |
173.1 |
Research, Development & |
|
|
|
|
|
Global Supply Chain |
- |
(107.2) |
76.1 |
43.7 |
1,206.8 |
1,816.7 |
256.8 |
121.6 |
86.2 |
2,006.6 |
|
Corporate administration |
- |
(58.1) |
8.5 |
5.7 |
901.2 |
Restructuring charges and |
|
|
|
|
|
$1,816.7 |
$149.7 |
$130.1 |
$91.9 |
$2,907.8 |
|
2001 4 |
|||||
Americas |
$ 763.1 |
$212.6 |
$ 20.2 |
$11.3 |
$ 311.5 |
Europe |
581.7 |
130.9 |
13.0 |
17.1 |
296.3 |
Asia |
320.7 |
81.8 |
6.6 |
5.9 |
159.4 |
Research, Development & |
|
|
|
|
|
Global Supply Chain |
- |
(119.8) |
101.5 |
50.3 |
1,194.4 |
1,665.5 |
161.7 |
148.0 |
92.4 |
1,998.1 |
|
Corporate administration |
- |
(43.9) |
7.1 |
4.0 |
995.4 |
Restructuring charges and |
|
|
|
|
|
Other significant charges 2 |
- |
(9.9) |
- |
- |
- |
$1,665.5 |
$86.7 |
$155.1 |
$96.4 |
$2,993.5 |
|
2000 4 |
|||||
Americas |
$ 878.2 |
$315.2 |
$ 8.4 |
$15.8 |
$ 353.6 |
Europe |
472.0 |
86.9 |
14.2 |
10.7 |
364.1 |
Asia |
368.5 |
110.2 |
6.4 |
6.3 |
186.7 |
Research, Development & |
|
|
|
|
|
Global Supply Chain |
- |
(98.1) |
95.7 |
42.3 |
1,113.1 |
1,718.7 |
277.8 |
131.5 |
81.3 |
2,056.1 |
|
Corporate administration |
- |
(52.0) |
16.2 |
13.7 |
1,183.2 |
Purchase accounting adjustments 3 |
- |
(26.8) |
- |
- |
- |
Restructuring charges and |
|
|
|
|
|
Other significant charges 2 |
- |
(23.4) |
- |
- |
- |
$1,718.7 |
$141.9 |
$147.7 |
$95.0 |
$3,239.3 |
1
Prior year amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.2
Other significant charges in 2001 consisted of $7.1 related to hiring costs for the company's current chief executive officer and $2.8 of severance costs for the company's former chief executive officer. In 2000, $3.7 related to the failed acquisition attempt of Wesley Jessen VisionCare, Inc. and $19.7 related to the settlement of litigation.3
Purchase accounting adjustments consisted of a charge of $23.8 for purchased IPR&D and a purchase accounting inventory adjustment of $3.0.4
As described in Note 8 - Accounting for Goodwill and Intangibles, the company adopted SFAS No. 142 as of December 30, 2001, under which the company will no longer amortize goodwill. If the adoption of SFAS No. 142 had occurred as of the beginning of the year ended December 30, 2000, segment operating income would increase and amortization expense would decrease by like amounts for this pro forma adjustment. In 2001, the pro forma adjustments for the Americas, Asia and Global Supply segments are $0.1, $0.1 and $26.6, respectively. In 2000, the pro forma adjustments for the Asia and Global Supply segments are $0.2 and $25.1, respectively.
Geographic Region The following table presents sales and long-lived assets by geography for the years 2002, 2001 and 2000. Sales to unaffiliated customers represent net sales originating in entities physically located in the identified geographic area. Japan generated over 10% of product net sales in 2002 and 2000 totaling $176.9 and $217.7, respectively. Germany generated over 10% of product net sales in 2001 totaling $177.9. No other country, or single customer, generated over 10% of total product net sales in 2002, 2001 or 2000. Long-lived assets include property, plant and equipment, goodwill and intangibles, other investments and other assets. Of the total non-U.S. long-lived assets for 2002, $215.3 and $207.2 of these assets, comprised primarily of goodwill and other intangibles, are located in the countries of Germany and France, respectively. Of the total long-lived assets for 2001, $196.5, $190.5 and $68.0 of these assets, comprised primarily of goodwill and intangibles, w ere located in the countries of Germany, France and the United Kingdom,
Bausch & Lomb 61 Annual Report 2002
respectively. Of the total non-U.S. long-lived assets for 2000, $197.8 and $191.7 of these assets, comprised primarily of goodwill and other intangibles, were located in the countries of France and Germany, respectively. In addition, $69.8, $69.6 and $65.0 of the total non-U.S. long-lived assets for 2002, 2001 and 2000, respectively, comprised primarily of net property, plant and equipment, were located in Ireland.
U.S. |
Non-U.S. |
Consolidated |
|
|
|||
Sales to unaffiliated customers |
$761.8 |
$1,054.9 |
$1,816.7 |
Long-lived assets |
785.0 |
701.8 |
1,486.8 |
|
|||
Sales to unaffiliated customers 1 |
$683.4 |
$ 982.1 |
$1,665.5 |
Long-lived assets |
839.1 |
639.8 |
1,478.9 |
|
|||
Sales to unaffiliated customers 1 |
$828.0 |
$ 890.7 |
$1,718.7 |
Long-lived assets |
818.2 |
622.0 |
1,440.2 |
1
Amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.
7. Supplemental Balance Sheet Information
|
December 28, |
December 29, |
Inventories, net |
||
Raw materials and supplies |
$ 50.0 |
$ 60.4 |
Work in process |
21.3 |
25.4 |
Finished products |
137.2 |
167.6 |
$208.5 |
$253.4 |
|
December 28, |
December 29, |
Property, Plant And Equipment |
||
Land |
$ 16.4 |
$ 14.7 |
Buildings |
316.8 |
295.3 |
Machinery and equipment |
879.4 |
815.1 |
Leasehold improvements |
27.6 |
25.3 |
1,240.2 |
1,150.4 |
|
Less accumulated depreciation |
(702.7) |
(607.1) |
$ 537.5 |
$ 543.3 |
8. Accounting For Goodwill And Intangibles
In July 2001, the FASB issued SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 142 provides guidance on how to account for goodwill and intangible assets after an acquisition is complete. The most substantive change required by this statement is that goodwill will no longer be amortized; instead, it will be tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The statement applies to existing goodwill and intangible assets, effective for fiscal years beginning after December 15, 2001. The company adopted SFAS No. 142 in the fiscal year beginning December 30, 2001.
Upon adoption of SFAS No. 142, the company analyzed existing intangible assets that had been recognized separately from goodwill and reclassified intangibles that did not meet the separate recognition criteria as prescribed in SFAS No. 141, Business Combinations, to goodwill. As such, $146.0 of intangibles, including assembled workforce and customer relationships, were reclassified to goodwill and $10.3 of deferred tax liabilities previously associated with those intangible assets were eliminated with a corresponding reduction in goodwill. Additionally, the company reassessed the useful lives of the remaining intangibles and concluded that there were no indefinite-lived intangible assets. As described in Note 9 - Acquired Intangible Assets, the company reduced the useful lives of certain acquired trade names and has applied the change in accounting
Bausch & Lomb 62 Annual Report 2002
estimate prospectively. The company identified and established reporting units to be the company's business segments and determined that goodwill was not impaired based on a comparison of the carrying value of goodwill attributable to each of the company's reporting units to their respective fair values. Fair value was based on the average of the indications of value derived from the income and market approaches, weighted equally. The income approach measured the fair value by discounting expected cash flows by reporting unit to their present value at a rate of return that is commensurate with their inherent risk. The market approach measured the fair value by analyzing and comparing the operating performance and financial condition of public companies within the ophthalmic pharmaceutical industry and companies subject to similar market conditions adjusted for differences in profitability, financial position, products and markets.
The company completed its annual impairment test on each of its reporting units during the fourth quarter of 2002. The carrying value of goodwill for each of the company's reporting units as of October 26, 2002 was less than their respective fair values, therefore, goodwill was not considered impaired. Fair value was determined using the same methodology employed during the initial application of SFAS No. 142.
The following table reflects consolidated results adjusted as though the adoption of SFAS No. 142 was as of the beginning of the year ended December 30, 2000:
Year Ended |
|||
December 28, |
December 29, |
December 30, |
|
Reported income from continuing operations |
$72.5 |
$42.0 |
$82.0 |
Goodwill amortization (net of tax of $8.9 and $7.3 |
|
|
|
Amortization of intangibles reclassified to |
|
|
|
Amortization of trade names due to change in |
|
|
|
Adjusted income from continuing operations |
72.5 |
59.4 |
98.3 |
Discontinued operations, net of taxes |
- |
(21.1) |
- |
Adjusted income before extraordinary item |
72.5 |
38.3 |
98.3 |
Extraordinary item, net of taxes |
- |
- |
1.4 |
Adjusted income before change in accounting |
|
|
|
Change in accounting principle, net of taxes |
- |
0.3 |
- |
Adjusted net income |
$72.5 |
$38.6 |
$99.7 |
Basic earnings per share: |
|||
Reported income from continuing operations |
$1.35 |
$0.78 |
$1.51 |
Goodwill amortization |
- |
0.31 |
0.25 |
Amortization of intangibles reclassified to |
|
|
|
Amortization of trade names due to change in |
|
|
|
Discontinued operations |
- |
(0.39) |
- |
Extraordinary item |
- |
- |
0.03 |
Change in accounting principle |
- |
- |
- |
Adjusted net income per share |
$1.35 |
$0.71 |
$1.85 |
Diluted earnings per share: |
|||
Reported income from continuing operations |
$1.34 |
$0.78 |
$1.49 |
Goodwill amortization |
- |
0.31 |
0.24 |
Amortization of intangibles reclassified to |
|
|
|
Amortization of trade names due to change in |
|
|
|
Discontinued operations |
- |
(0.39) |
- |
Extraordinary item |
- |
- |
0.03 |
Change in accounting principle |
- |
- |
- |
Adjusted net income per share |
$1.34 |
$0.71 |
$1.82 |
Bausch & Lomb 63 Annual Report 2002
During September 2002, the company acquired a third-party distributor located in Spain. The $8.3 purchase price was allocated to identified assets, including tangible and intangible assets, and liabilities based upon their respective fair values. The excess of the purchase price over the value of the identified assets and liabilities has been recorded as goodwill and is reflected in the table below.
The changes in the carrying amount of goodwill for the year ended December 28, 2002, are as follows:
|
|
|
Global |
|
|
|
Balance as of December 29, 2001 1 |
$176.4 |
$231.6 |
$ 9.4 |
$ 37.1 |
$ - |
$454.5 |
Intangibles reclassified to goodwill |
110.1 |
35.5 |
0.2 |
0.2 |
- |
146.0 |
Elimination of deferred tax liabilities |
(0.3) |
(10.0) |
- |
- |
- |
(10.3) |
Reclassification to Global Supply as |
|
|
|
|
|
|
Acquisition of distributorship |
- |
6.8 |
- |
- |
- |
6.8 |
Other (includes currency effect) |
(1.9) |
12.9 |
0.5 |
27.5 |
- |
39.0 |
|
|
|
|
|
|
|
1
Activity during 2001 primarily consisted of: $2.2 in the Americas for the acquisition of Biocumed, a developer and marketer of ophthalmic products; $12.0 in Europe for the acquisition of Fidia Oftal, an ophthalmic pharmaceuticals business and $17.2 in Europe for additional acquisition costs and exit related activities associated with the acquisitions of Groupe Chauvin and Woehlk during 2000.
9. Acquired Intangible Assets
In connection with the company's adoption of SFAS No. 142, Goodwill and Intangible Assets, the company also reassessed the remaining useful lives of its intangible assets and determined that certain acquired trade names required a reduction in their remaining useful lives. A change in the company's strategies and business objectives indicated that a reduction in the remaining useful lives of certain trade names was appropriate. Remaining useful lives of trade names associated with the Chiron, Storz and Groupe Chauvin acquisitions were reduced from 16, 36 and 29 years to 7, 10 and 15 years, respectively. The remaining useful lives were revised by the company based upon current strategies and objectives, an assessment of product characteristics, the pace of technological advancement and trends in the market place. This change in accounting estimate was applied prospectively as of December 30, 2001 and accounted for $3.1 of amortization expense, net of tax, during 2002.
As described in Note 8 - Accounting for Goodwill and Intangibles, the company acquired a third-party distributor during September 2002. Intangible assets, consisting of customer contracts, were assigned a fair value of $0.6 and are included in the table below.
The components of intangible assets as of December 28, 2002 and December 29, 2001 are as follows:
December 28, 2002 |
December 29, 2001 |
|||
Gross Carrying |
Accumulated |
Gross Carrying |
Accumulated |
|
Trade names |
$ 89.9 |
$18.6 |
$ 89.2 |
$10.4 |
Technology and patents |
83.7 |
55.0 |
86.0 |
48.3 |
Developed technology |
70.5 |
8.2 |
62.7 |
4.2 |
License agreements |
31.9 |
8.7 |
27.5 |
4.3 |
Intellectual property |
25.9 |
2.7 |
25.9 |
0.5 |
Physician information & |
|
|
|
|
Customer contracts |
0.6 |
0.1 |
- |
- |
Intangibles reclassified to goodwill 1 |
- |
- |
168.9 |
22.9 |
$321.6 |
$94.8 |
$477.0 |
$92.5 |
1
As described in Note 8 - Accounting for Goodwill and Intangibles, $146.0 of intangibles were reclassified to goodwill.Bausch & Lomb 64 Annual Report 2002
Amortization expense of intangibles was $24.9 for 2002. Estimated amortization expense of intangibles presently owned by the company for each of the next five succeeding fiscal years is as follows:
Fiscal Year Ended |
Amount |
December 27, 2003 |
$25.1 |
December 25, 2004 |
25.1 |
December 31, 2005 |
23.7 |
December 30, 2006 |
16.0 |
December 29, 2007 |
16.0 |
10. Other Short- And Long-Term Investments
Netherlands Guilder Investment The company had previously 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 were restricted to high quality, short-term investments (less than 90 days) and government obligations, and as such, the net asset value was not expected to be materially different than fair value. The issuer reinvested all of its income. At December 30, 2000, the average euro rate of return was 4.73%. During 2000, a cross-currency swap transaction that effectively hedged the currency risk and converted the NLG income to a U.S. dollar rate of return matured and was not renewed in anticipation of the company exercising its option to put part of its equity position back to the issuer in the first quarter of 2001.
The company, through two non-U.S. legal entities, owned approximately 22% of the subsidiary of the financial institution; the financial institution owned the remainder. The company had the right to put its equity position at net asset value to the financial institution at the end of each quarter until January 2003. Since the securities were not readily marketable, this represented the company's ability to exit from the investment. The company notified the financial institution in the fourth quarter of 2000 that it would exercise its right to put a significant portion of its equity position. The company completed this liquidation of the investment by the end of the first quarter of 2001.
U.S. Dollar Investment The company had previously invested $425.0 in equity securities issued by a subsidiary of a double-A rated financial institution. The securities paid quarterly cumulative dividends at a variable LIBOR-based rate. At December 25, 1999, this rate was 4.96%. The issuer and the company agreed to redeem these securities at par over a 12-month period commencing January 5, 1999. During 1999, $300.0 of this investment, which was classified as short-term, was redeemed. At December 25, 1999, the remaining $125.0 of the investment was classified as short-term and subsequently, on January 5, 2000, the remaining portion was redeemed. The company used the redemption proceeds to finance operational requirements outside the U.S. and invest in short-term money market instruments.
Other Investments At December 29, 2001, the company owned common stock in Charles River Laboratories, Inc., which represented the retention of a minority equity interest from the sale of the Charles River Laboratories business during 1999. This investment was classified as available-for-sale under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. During 2001, approximately 1,300,000 shares or 51.0% of the company's original minority equity interest were sold, resulting in realized gains of $12.6, net of taxes. As of December 29, 2001, the investment was valued at $41.9. A resulting unrealized holding gain of $20.9, net of taxes, recorded at December 29, 2001, is reflected in the Statement of Changes in Shareholders' Equity. During the first quarter of 2002, the company liquidated its remaining shares and recorded a realized gain of $18.1, net of taxes.
Bausch & Lomb 65 Annual Report 2002
11. Provision For Income Taxes
An analysis of the components of income from continuing operations before income taxes and minority interest and the related provision for income taxes is presented below:
2002 |
2001 |
2000 |
|
(Loss) income from continuing operations before |
|||
U.S. |
$(70.9) |
$(30.7) |
$ (7.0) |
Non-U.S. |
207.9 |
115.7 |
167.7 |
$137.0 |
$ 85.0 |
$160.7 |
|
Provision for income taxes |
|||
Federal |
|||
Current |
$ 13.7 |
$ 16.0 |
$ 31.2 |
Deferred |
(19.9) |
(20.9) |
(12.9) |
State |
|||
Current |
2.2 |
1.9 |
6.5 |
Deferred |
(2.4) |
(5.6) |
(4.2) |
Foreign |
|||
Current |
58.0 |
35.8 |
49.1 |
Deferred |
(4.4) |
1.5 |
(4.2) |
$ 47.2 |
$ 28.7 |
$ 65.5 |
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 ($16.2 of non-U.S. net operating losses and $95.7 of U.S. capital losses as of December 28, 2002) and credit carryforwards ($39.2 as of December 28, 2002), some of which expire between 2003 and 2007, and others which have no expiration, is contingent on future taxable income in the appropriate jurisdictions. Valuation allowances have been recorded for these and other asset items, which may not be realized. Each carryforward item is reviewed for expected utilization, using a "more likely than not" approach, based on the character of the carryforward item (credit, loss, etc.), the associated taxing jurisdiction (U.S., state, non-U.S., etc.), the relevant history for the particular item, the applicable expiration dates, operating proj ects that would impact utilization, and identified actions under the control of the company in realizing the associated carryforward benefits. Additionally, the company's utilization of U.S. foreign tax credit and state investment credit carryforwards is dependent on related statutory limitations that involve numerous factors beyond overall positive income, all of which have been taken into account by the company in its evaluation. The company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances. The company continues to assess and evaluate strategies that will enable the carryforwards to be utilized, and will reduce the valuation allowance appropriately for each item at such time when it is determined that the "more likely than not" approach is satisfied for the related item, or portion thereof.
Bausch & Lomb 66 Annual Report 2002
Deferred Taxes |
Deferred Taxes |
|||||
Assets |
Liabilities |
Assets |
Liabilities |
|||
Current: |
||||||
Sales and allowance accruals |
$ 32.3 |
$ - |
$ 14.7 |
$ - |
||
Employee benefits and compensation |
21.6 |
- |
21.1 |
- |
||
Unrealized foreign exchange transactions |
12.9 |
- |
6.8 |
- |
||
Inventories |
8.9 |
- |
20.7 |
- |
||
Restructuring accruals |
8.5 |
- |
2.8 |
- |
||
Other accruals |
4.7 |
12.6 |
7.9 |
10.6 |
||
Valuation allowance |
(16.2) |
- |
- |
- |
||
$ 72.7 |
$ 12.6 |
$ 74.0 |
$ 10.6 |
|||
Non-current: |
||||||
Tax loss and credit carryforwards |
$ 92.0 |
$ - |
$128.2 |
$ - |
||
Employee benefits and compensation |
35.7 |
- |
20.2 |
- |
||
Other accruals |
- |
10.5 |
- |
27.4 |
||
Depreciation and amortization |
48.2 |
50.7 |
22.9 |
67.1 |
||
Valuation allowance |
(39.6) |
- |
(54.0) |
- |
||
Intercompany investments |
- |
195.9 |
- |
202.7 |
||
136.3 |
257.1 |
117.3 |
297.2 |
|||
$209.0 |
$269.7 |
$191.3 |
$307.8 |
Reconciliation of the statutory U.S. federal income tax rate to the effective tax rates for continuing operations are as follows:
2002 |
2001 |
2000 |
|
Statutory U.S. tax rate |
35.0% |
35.0% |
35.0% |
Difference between non-U.S. and U.S. tax rates |
0.6 |
2.7 |
0.3 |
Goodwill amortization |
- |
0.6 |
0.4 |
Foreign Sales Corporation tax benefit |
(0.6) |
(2.5) |
(1.0) |
State income taxes, net of federal tax benefit |
(0.1) |
(2.9) |
0.7 |
Other |
(0.4) |
0.9 |
0.1 |
Non-deductible purchased research & development |
- |
- |
5.3 |
Effective tax rate |
34.5% |
33.8% |
40.8% |
At December 28, 2002, income considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $804.8. Deferred income taxes have not been provided on this income, 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 this undistributed foreign income.
12. Debt
Short-term debt at December 28, 2002 and December 29, 2001, consisted of $1.4 and $32.6 in non-U.S. borrowings, respectively.
To support its liquidity requirements, the company generally maintains U.S. revolving credit agreements. In January 2001, a $525.0 364-day revolving credit agreement that expired December 22, 2000 was replaced with a $250.0 syndicated revolving credit agreement expiring in 2004. Subsequent to year-end 2002, the company replaced this $250.0 revolving credit agreement with a five-year $400.0 syndicated agreement. The current facility includes covenants requiring the company to maintain certain EBITDA to interest and debt ratios. In the event of violation of the covenants, the facility would not be available for borrowing until the covenant provisions were waived, amended or satisfied. The company does not anticipate that a violation is likely to occur. In addition, the new agreement requires a reduction of the facility in the ev ent the company issues public debt or equity or sells material U.S. assets. The facility will not be reduced to less than $250.0. The interest rate under the agreement is based on the company's credit rating and LIBOR, or the highest rate based on secondary certificates of deposit, Federal Funds or the base rate of one of the lending banks. There were no outstanding revolver borrowings as of December 28, 2002 or December 29, 2001. There were no covenant violations during 2002 or 2001.Bausch & Lomb 67 Annual Report 2002
Average short-term interest rates were 0.4% and 0.8% for the years ended 2002 and 2001, respectively. The maximum amount of short-term debt at the end of any month was $30.1 in 2002 and $33.7 in 2001. Average short-term month-end borrowings were $15.1 in 2002 and $23.6 in 2001.
The components of long-term debt were:
Stated Interest |
Principal Outstanding |
||
Rate |
December 28, |
December 29, |
|
Fixed-rate notes |
|||
Notes due in 2003 1 |
5.95 |
$ 85.0 |
$ 85.0 |
Notes due in 2003 or 2013 2 |
6.38 |
100.0 |
100.0 |
Notes due in 2004 3 |
6.75 |
194.6 |
194.6 |
Notes due in 2005 or 2025 2 |
6.50 |
100.0 |
100.0 |
Notes due in 2007 4, 5 |
6.95 |
150.0 |
- |
Debentures due in 2028 4 |
7.13 |
190.0 |
191.0 |
World Headquarters 6 |
2.99 |
- |
65.0 |
Variable rate and other borrowings |
|||
Securitized trade receivables expiring in 2002 |
1.91 |
- |
25.0 |
Industrial Development Bonds due in 2015 |
1.33 7 |
8.5 |
8.5 |
Other |
Various |
14.6 |
24.8 |
842.7 |
793.9 |
||
Less current portion |
(186.5) |
(90.7) |
|
$656.2 |
$703.2 |
1
At December 29, 2001 an interest rate swap agreement converted this note to a floating-rate liability at an effective rate of 3.69%. The interest rate swap was terminated during 2002. Proceeds from the swap termination were deferred and are being amortized to interest expense over the remaining life of the debt, for a net effective rate of 3.98%.2
Notes contained put/call options exercisable at 100% of par in 2003 and 2005 for the 6.38% and 6.50% notes, respectively. The company had also entered into remarketing agreements with respect to each of these issues, which allowed the agent to call the debt from the holders on the option exercisable dates, and then remarket them. If the rights were exercised, the coupon rate paid by the company would reset to a rate higher than the then current market rate. Following the company's debt rating downgrade, by Moody's Investors Service during March 2002, the agents exercised their right to put the remarketing agreements back to the company. As a result, the 6.38% and 6.50% debt will mature in 2003 and 2005, respectively. Net remarketing options expense and interest rate swap proceeds were deferred and are being amortized to interest expense over the remaining life of the debt, for a net effective rate of 5.95% and 6.29% for the 2003 and 2005 debt, respectively.3
At December 29, 2001, an interest rate swap agreement converted this note to a floating-rate liability at an effective rate of 4.22%. The interest rate swap was terminated during 2002. Proceeds from the swap termination were deferred and are being amortized to interest expense over the remaining life of the debt, for a net effective rate of 4.17%.4
The company, at its option, may call these notes/debentures at any time pursuant to a make-whole redemption provision, which would compensate holders for any changes in market value of the notes/debentures upon early extinguishment. The company currently has no intention to call these notes/debentures.5
In May 2002, the company entered into an interest rate lock agreement to hedge this debt issue. Losses associated with the hedge have been deferred to other comprehensive income and are being amortized to interest expense over the debt term, for a net effective rate of 8.65%.6
At December 29, 2001, an interest rate swap converted this note to a fixed-rate liability at an effective rate of 8.38%. The interest rate swap matured upon maturity of the underlying debt in December 2002.7
Represents rate at December 28, 2002. Rate at December 29, 2001 was 1.95%.
The company retired $16.6 of the notes due in 2003 and 2028, during 2002. In 2001, the company retired $199.5 of the notes due in 2001 or 2026, 2001 or 2011 and 2028. The company recognized an extraordinary gain of less than $0.1, net of taxes, in 2001.
Interest rate swap agreements on long-term debt issues resulted in a decrease in the long-term effective interest rate from 6.21% to 5.56% in 2002 and from 6.30% to 5.97% in 2001. At December 28, 2002, the company had no outstanding interest rate swaps. Long-term borrowing maturities during the next five years are $186.5 in 2003; $196.2 in 2004; $100.2 in 2005; $0.0 in 2006; and, $152.4 in 2007.
During November 2001, the company modified the conditions of the lease associated with its World Headquarters office facility by purchasing the equity owner's interest. A $2.4 payment was made to the original equity owner during January 2002. The previous operating lease treatment ceased at the time of the lease modification. The real property and related debt of $63.2 and $65.0, respectively, were consolidated by the company in the fourth quarter of 2001. The debt was repaid upon maturity during December 2002. During 2002 and 2001, net rental payments under the lease were $2.9 and $3.1, respectively.
In November 2002, the company issued $150.0 of five-year 6.95% fixed senior notes. Proceeds from the offering are being used for general corporate purposes, including the refinancing of existing debt obligations. The senior notes were issued under the company's $500.0 Shelf Registration filed with the Securities and Exchange Commission in June 2002, of which $350.0 remains available for issuance at December 2002.
Bausch & Lomb 68 Annual Report 2002
13. Employee Benefits
The company's benefit plans, which in the aggregate cover substantially all U.S. employees and employees in certain other countries, consist of defined benefit pension plans, defined contribution plans and a participatory defined benefit postretirement plan.
The information provided below pertains to the company's defined benefit pension and postretirement plans. The following table provides reconciliations of the changes in benefit obligations, fair value of plan assets and funded status for the two-year period ended December 28, 2002.
Pension Benefit Plans |
Postretirement Benefit Plan |
|||||
2002 |
2001 |
2002 |
2001 |
|||
Reconciliation of benefit obligation |
||||||
Obligation at beginning of year |
$264.3 |
$251.9 |
$70.1 |
$50.5 |
||
Service cost |
12.2 |
13.8 |
1.0 |
1.1 |
||
Interest cost |
17.9 |
17.6 |
6.1 |
4.5 |
||
Participant contributions |
1.1 |
0.9 |
- |
- |
||
Plan amendments |
(0.1) |
0.8 |
- |
- |
||
Acquisitions/divestitures |
- |
(0.1) |
- |
- |
||
Currency translation adjustments |
7.0 |
(2.1) |
- |
- |
||
Curtailment gains |
(0.3) |
- |
- |
(0.7) |
||
Benefit payments |
(20.7) |
(22.6) |
(8.8) |
(7.9) |
||
Actuarial loss |
11.2 |
4.1 |
21.7 |
22.6 |
||
Obligation at end of year |
$292.6 |
$264.3 |
$90.1 |
$70.1 |
||
Reconciliation of fair value of plan assets |
||||||
Fair value of plan assets at beginning of year |
$215.1 |
$248.6 |
$38.2 |
$41.1 |
||
Actual return on plan assets |
(25.0) |
(12.9) |
(4.1) |
(2.1) |
||
Acquisitions/divestitures |
- |
(0.1) |
- |
- |
||
Employer contributions |
30.5 |
2.8 |
8.0 |
7.1 |
||
Participant contributions |
1.1 |
0.9 |
- |
- |
||
Benefit payments |
(20.7) |
(22.6) |
(8.8) |
(7.9) |
||
Currency translation adjustments |
5.6 |
(1.6) |
- |
- |
||
Fair value of plan assets at end of year |
$206.6 |
$215.1 |
$33.3 |
$38.2 |
||
Reconciliation of funded status to net amount |
||||||
Funded status at end of year |
$ (86.0) |
$ (49.2) |
$(56.8) |
$(31.9) |
||
Unrecognized transition obligation |
0.5 |
0.9 |
- |
- |
||
Unrecognized prior-service cost |
3.6 |
3.8 |
0.3 |
0.3 |
||
Unrecognized actuarial loss (gain) |
93.7 |
41.6 |
12.1 |
(17.2) |
||
Net amount recognized at end of year |
$ 11.8 |
$ (2.9) |
$(44.4) |
$(48.8) |
The 2002 increase in the unrecognized actuarial loss in the pension benefit plans and the change in the postretirement benefit plan from an unrecognized actuarial gain in 2001 to an unrecognized actuarial loss in 2002 are primarily the result of the difference between the actual return on plan assets and the expected return on plan assets, the decline in the discount rate assumed and changes in certain other plan assumptions.
The plan assets shown above for the pension benefit plans include 52,800 shares of the company's Common stock.
The following table provides information related to underfunded pension plans:
2002 |
2001 |
|
Projected benefit obligation |
$260.8 |
$241.4 |
Accumulated benefit obligation |
239.2 |
215.6 |
Fair value of plan assets |
178.4 |
186.0 |
Bausch & Lomb 69 Annual Report 2002
The company's postretirement benefit plan was underfunded for each of the past two years.
The following table provides the amounts recognized in the balance sheets as of the end of each year:
Pension Benefit Plans |
Postretirement Benefit Plan |
||||
2002 |
2001 |
2002 |
2001 |
||
Prepaid benefit cost |
$ 1.4 |
$ 0.9 |
$ - |
$ - |
|
Accrued benefit liability |
(62.7) |
(30.6) |
(44.4) |
(48.8) |
|
Intangible asset |
3.4 |
3.9 |
- |
- |
|
Accumulated other comprehensive income |
69.7 |
22.9 |
- |
- |
|
Net amount recognized at end of year |
$11.8 |
$(2.9) |
$(44.4) |
$(48.8) |
The following table provides the components of net periodic benefit cost for the plans for fiscal years 2002, 2001 and 2000:
Pension Benefit Plans |
Postretirement Benefit Plan |
||||||
2002 |
2001 |
2000 |
2002 |
2001 |
2000 |
||
Service cost |
$12.2 |
$13.8 |
$12.7 |
$ 1.0 |
$ 1.1 |
$ 1.6 |
|
Interest cost |
17.9 |
17.6 |
15.9 |
6.1 |
4.5 |
3.7 |
|
Expected return on plan assets |
(19.3) |
(21.5) |
(21.4) |
(3.4) |
(3.7) |
(3.7) |
|
Amortization of transition obligation |
0.4 |
0.9 |
0.5 |
- |
- |
- |
|
Amortization of prior-service cost |
0.7 |
0.6 |
1.4 |
(0.1) |
(0.1) |
(0.1) |
|
Amortization of net loss (gain) |
2.0 |
0.2 |
0.1 |
- |
(2.4) |
(3.8) |
|
Net periodic benefit cost |
13.9 |
11.6 |
9.2 |
3.6 |
(0.6) |
(2.3) |
|
Curtailment loss (gain) |
0.7 |
- |
1.5 |
- |
(0.7) |
(0.9) |
|
|
|
|
|
|
|
|
The 2002 curtailment loss in Pension Benefit Plans related to the restructuring actions taken in 2002. A curtailment gain or loss may be recognized when the employees affected by the 2002 Profitability Improvement Program (as discussed in Note 5 - Restructuring Charges and Asset Write-offs) are terminated in 2003. The 2001 and 2000 curtailment gains and losses related to the restructuring actions taken in those years.
Key assumptions used to measure benefit obligations in the company's benefit plans are shown in the following table:
2002 |
2001 |
|
Weighted Average Assumptions |
||
Discount rate |
6.5% |
7.1% |
Expected return on plan assets |
9.0% |
9.2% |
Rate of compensation increase |
4.2% |
4.8% |
For amounts pertaining to postretirement benefits, an 8% annual rate of increase in the per capita cost of covered health care benefits for pre-65 years of age participants was assumed for 2002. The pre-65 trend rate grades down by 1.0% per year to an ultimate annual rate of 5.0% in 2005. An 11.0% annual rate of increase in the per capita cost of covered health care benefits for participants age 65 and older was assumed in 2002. The age 65 and older trend rate grades down by 1.0% per year to an ultimate annual rate of 5.0% in 2008. To demonstrate the significance of this rate on the expense reported, a one-percentage point change in the assumed health care cost trend rate would have the following effect:
1% Increase |
1% Decrease |
||
Effect on total service and interest cost components of |
|
|
|
Effect on the health care component of the accumulated |
|
|
The costs associated with defined contribution plans totaled $11.3, $11.2 and $14.0 for 2002, 2001 and 2000, respectively.
Bausch & Lomb 70 Annual Report 2002
14. Minority Interest
The minority interest in subsidiaries at December 29, 2001, primarily represented an outside partnership interest of 22% in Wilmington Partners L.P. (the Partnership). The remaining partnership interests were held by four wholly owned subsidiaries of the company. The Partnership was a separate legal entity from the company, but for financial reporting purposes, assets, liabilities and results of operations from the Partnership were included in the company's consolidated financial results. The outside investor's limited partnership interest was recorded as minority interest totaling $200.0 in the company's consolidated financial statements at December 29, 2001. During March 2002, the outside partner exercised its put right for all of its partnership interest, and the company recorded a one-time early liquidation premium of $7.0, net of taxes, in connection with the early termination of the outside partner's interest. The termination of the minority interest obligation and payment of the associated early li quidation premium occurred in May 2002. The payment was funded through existing cash reserves and borrowings of $75.0 against the company's existing syndicated revolving credit agreement, which was repaid by the company in July 2002. The minority interest liability at December 28, 2002 represents the company's outside partnership interests in non-U.S. commercial and manufacturing joint ventures, which are fully consolidated in the company's results.
15. Operating Leases
The company leases land, buildings, machinery and equipment under noncancelable operating leases. Total annual rental expense for 2002, 2001 and 2000 amounted to $22.4, $27.8 and $28.0, respectively.
Minimum future rental commitments having noncancelable lease terms in excess of one year aggregated $48.2, net of aggregated sublease rentals of $1.0, as of December 28, 2002 and are payable as follows: 2003, $16.8; 2004, $11.5; 2005, $8.4; 2006, $5.8; 2007, $3.7 and beyond, $2.0.
16. Commitments and Contingencies
Lines of Credit The company guarantees indebtedness of its subsidiaries under lines of credit used for working capital. At December 28, 2002, outstanding balances under such lines of credit totaled approximately $1.4 with total availability of approximately $75.0.
Letters of Credit At December 28, 2002, the company had outstanding standby letters of credit totaling approximately $24.7 to ensure payment of possible workers' compensation and other insurance claims, product liability claims and payment of an Industrial Development Revenue Bond. At December 28, 2002, the company had recorded liabilities of approximately $15.2 as it relates to insurance claims and $8.5 in Industrial Development Revenue Bonds due in 2015. During January 2003, guarantees of payment under standby letters of credit increased to a total of approximately $29.2 as it relates to workers' compensation and product liability claims.
Guarantees The company guarantees a mortgage held by a strategic research and development partner. The mortgage is secured by the property with an appraised value of $5.3. The company's guarantee has a five-year term expiring July 2007. At December 28, 2002, the guarantee totaled $4.0. This guarantee would require payment from the company in the event of default by the research partner and failure of the security to fully satisfy the then outstanding debt.
The company also guarantees a lease obligation of a customer in connection with a joint marketing alliance. The lease obligation has a term of ten years expiring November 2011. At December 28, 2002, the amount guaranteed was approximately $10.0. In the event of default, the guarantee would require payment from the company. Sublease rights as specified under the agreement would reduce the company's exposure.
The company believes the likelihood is remote that material payments will be required under these guarantees.
Tax Indemnifications In connection with divestitures, the company has agreed to indemnify certain tax obligations arising out of tax audits or administrative or court proceedings relating to tax returns for any periods ending on or prior to the closing date of the divestiture. The company believes that any claim would not have a material impact on the company's financial position.
Environmental Indemnifications The company has certain obligations for environmental remediation and Superfund matters related to current and former company sites. The company has an ongoing program in place designed to identify and manage potential environmental liabilities through such actions as having a rotating schedule of regular assessments performed to identify and manage potential issues at company
Bausch & Lomb 71 Annual Report 2002
sites before they occur, audits of U.S. hazardous waste disposal site vendors to ensure contractor compliance with applicable laws, a domestic waste disposal contract which contains indemnification of the company from the vendor for disposal of all waste once it leaves company property, a regular schedule of training and prevention programs designed to keep employees in company plants aware of their responsibilities, environmental due diligence for business acquisitions and real estate transactions and ongoing tracking of significant laws and regulations affecting the company in any of the countries where it operates. In those instances where the company may identify environmental liability, the company manages directly all remedial investigations, negotiation of approved remediation plans with applicable governmental authorities and implementation of all approved remediation activities.
At December 28, 2002, estimated future remediation costs of approximately $0.4 were accrued by the company, excluding estimates for legal expenses. It is reasonable to expect that the company's recorded estimates of its liabilities may change and there is no assurance that additional costs greater than the amounts accrued will not be incurred, or that changes in environmental laws or their interpretation will not require additional amounts to be spent. The company does not believe that its financial position, results of operations, and cash flows are likely to be materially affected by environmental liabilities.
Other Commitments and Contingencies The company has executed an agreement with a financial institution for the future purchase of the company's Common stock through one or more forward purchase transactions as discussed in Note 19 - Forward Equity Contracts.
The company is involved in lawsuits, claims, investigations and proceedings, including patent, trademark, commercial and environmental matters, which are being handled and defended in the ordinary course of business as described in Note 21 - Other Matters.
Product Warranties The company estimates future costs associated with expected product failure rates, material usage and service costs in the development of its warranty obligations. Warranty reserves are established based on historical experience of warranty claims and generally will be estimated as a percentage of sales over the warranty period or as a fixed dollar amount per unit sold. In the event that the actual results of these items differ from the estimates, an adjustment to the warranty obligation would be recorded. Changes in the company's product warranty liability during 2002 were as follows:
Balance at December 29, 2001 |
$8.1 |
Accruals for warranties issued |
5.2 |
Changes in accruals related to pre-existing warranties |
(1.4) |
Settlements made |
(6.0) |
Balance at December 28, 2002 |
$5.9 |
Deferred Service Revenue Service revenues are derived from service contracts on surgical equipment sold to customers and are recognized over the term of the contracts while costs are recognized as incurred. Changes in the company's deferred service revenue during 2002 were as follows:
Balance at December 29, 2001 |
$2.1 |
Accruals for service contracts |
9.1 |
Changes in accruals related to pre-existing service contracts |
(0.1) |
Revenue recognized |
(6.2) |
Balance at December 28, 2002 |
$4.9 |
Bausch & Lomb 72 Annual Report 2002
17. Financial Instruments
The carrying amount of cash, cash equivalents and notes payable approximated fair value as maturities are less than one year in duration. Certain current portion of long-term investments were classified as available-for-sale securities as of December 29, 2001 and were recorded at market value with the unrealized gain included in other comprehensive income. There were no such investments outstanding as of December 28, 2002. The company's remaining financial instruments consisted of the following:
December 28, 2002 |
December 29, 2001 |
||||
Carrying |
Fair |
Carrying |
Fair |
||
Non-derivatives |
|||||
Other investments |
$ 7.1 |
$ 7.1 |
$ 4.5 |
$ 4.5 |
|
Long-term debt, including current portion |
(842.7) |
(825.9) |
(793.9) |
(757.5) |
|
Derivatives held for purposes other than trading |
|||||
Foreign exchange instruments |
|||||
Other current assets |
$ 6.3 |
$ 6.3 |
$ 5.9 |
$ 5.9 |
|
Accrued liabilities |
(18.4) |
(18.4) |
(2.4) |
(2.4) |
|
Net foreign exchange instruments |
$ (12.1) |
$ (12.1) |
$ 3.5 |
$ 3.5 |
|
Interest rate instruments |
|||||
Other current assets |
$ - |
$ - |
$ 0.6 |
$ 0.6 |
|
Accrued liabilities |
(4.9) |
(4.9) |
(5.5) |
(5.5) |
|
Net interest rate instruments |
$ (4.9) |
$ (4.9) |
$ (4.9) |
$ (4.9) |
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 current rates offered to the company for debt with similar maturities. The fair value for foreign exchange and interest rate instruments was determined using a model that estimates fair value at market rates, or was based upon quoted market prices for similar instruments with similar maturities.
The company, as a result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates that may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the company manages exposures to changes in interest rates and foreign currency exchange rates by entering into derivative contracts. The company does not use financial instruments for trading or other speculative purposes, nor does it use leveraged financial instruments.
The company enters into foreign exchange forward contracts primarily to hedge foreign currency transactions and equity investments in non-U.S. subsidiaries. At December 28, 2002 and December 29, 2001, the company hedged aggregate exposures of $910.2 and $1,033.2, respectively, by entering into forward exchange contracts requiring the purchase and sale of U.S. and foreign currencies. The company selectively hedges firm commitments that represent both a right and an obligation, mainly for committed purchase orders for foreign-sourced inventory. In general, the foreign exchange forward contracts have varying maturities up to, but not exceeding, one year with cash settlements made at maturity based upon rates agreed to at contract inception.
The company's exposure to changes in interest rates results from investing and borrowing activities. The company may enter into interest rate swap, interest rate lock and cap agreements to effectively limit exposure to interest rate movements within the parameters of its interest rate hedging policy. At December 28, 2002 and December 29, 2001, the company was party to interest rate instruments that had aggregate notional amounts of $50.0 and $344.6, respectively.
Counterparties to the financial instruments discussed above expose the company to credit risks to the extent of non-performance. The credit ratings of the counterparties, which consist of a diversified group of major financial institutions, are regularly monitored and thus credit loss arising from counterparty non-performance is not anticipated.
Bausch & Lomb 73 Annual Report 2002
18. Accounting for Derivatives and Hedging Activities
Effective January 1, 2001, the company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No. 133, collectively referred to as SFAS No. 133. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. Changes in the fair value of derivatives are recorded each period in current income or other comprehensive income, depending on their designation as a hedge of a particular exposure.
A transition gain of $0.3, net of taxes, was recorded in the quarter ended March 31, 2001, as a cumulative adjustment to income for marking foreign currency forward contracts to fair value upon implementation of SFAS No. 133. This amount substantially pertained to contracts utilized to offset foreign exchange exposures related to foreign currency denominated assets and liabilities. The company does not apply hedge accounting to these contracts because they are marked to market through income at the same time that the exposed asset/liability is remeasured through income; both are recorded in foreign exchange loss (gain). Less than $0.1 related to contracts designated as net investment hedges of net assets of certain non-U.S. subsidiaries and cash flow hedge contracts designated to offset risks associated with intercompany loans with non-U.S. subsidiaries. In the quarter ended March 31, 2001, a transition adjustment loss of $1.8 pre-tax was recorded in other comprehensive incom e related primarily to an interest rate swap designated as a cash flow hedge to offset risks associated with interest payments on a variable-rate lease. The interest rate swap matured in 2002 and all amounts have been released from other comprehensive income.
For effective fair value hedge transactions in which the company is hedging changes in the fair value of assets, liabilities or firm commitments, changes in the fair value of the derivative instrument will generally be offset by changes in the hedged item's fair value. For fair value hedge transactions where the short-cut method is not permitted for assessing effectiveness, gains and losses arising from any ineffectiveness are recognized in the period in which they occur. During 2002, the company terminated the $279.6 of fair value interest rate swaps that were outstanding at December 29, 2001. In addition, the company entered into and subsequently terminated two interest rate swaps with notional amounts of $100.0 each during 2002. At December 28, 2002, the company had no outstanding interest rate fair value hedges.
For cash flow hedge transactions in which the company is hedging the variability of cash flows related to a variable rate asset, liability or forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be recognized in income in the periods in which income is impacted by the variability of the cash flows of the hedged item. Reclassifications from other comprehensive income into income were a $3.6 net loss in 2002 and $0.1 net gain in 2001. As of December 28, 2002, an estimated $2.4 pre-tax net loss was expected to be reclassified into income over the next twelve months. At December 28, 2002 and December 29, 2001, the company had designated foreign currency cash flow hedges with a total notional amount of $336.6 and $257.6, respectively. During 2002, the company terminated approximately $140.3 of foreign curre ncy cash flow hedges as the underlying exposures expired. In addition, the company entered into foreign exchange contracts that were designated as cash flow hedges for a notional amount of approximately $41.5. In December 2002, a $65.0 interest rate swap designated as a cash flow hedge matured. In May 2002, the company entered into a $200.0 notional principal amount cash flow hedge which was designated as a hedge of ten semi-annual interest payments based on the benchmark interest rate related to changes in the five year U.S. Treasury rate in connection with the company's forecasted debt offering of approximately $150.0 to $200.0. During the fourth quarter of 2002, the hedging instrument was extended and re-designated to hedge the benchmark interest rate associated with the ten semi-annual interest payments on the forecasted borrowing. Ineffectiveness of $1.9, associated with the original forecasted first semi-annual interest payment, was expensed. On November 18, 2002, the company issued $150.0 of fixed rat e debt and the amount associated with the cash flow hedge was recorded to other comprehensive income and will be amortized to interest expense in the period in which interest expense related to the hedged debt is recognized. The remaining $50.0 of the cash flow hedge was re-designated to hedge the benchmark interest rate associated with the ten semi-annual interest payments on future forecasted borrowings.
For instruments designated as either fair value or cash flow hedges, net interest expense of $1.6 was recognized for hedge ineffectiveness for the year ended December 28, 2002. Hedge ineffectiveness had no impact on income for the year ended December 29, 2001.
In general, foreign exchange forward contracts have varying maturities up to, but not exceeding, one year with cash settlements made at maturity based upon rates agreed to at contract inception and current market rates. For derivatives designated as hedging instruments for hedges of foreign currency exposures of net investments in non-U.S. subsidiaries, a net after-tax loss of $3.5 and $1.9 were included in the cumulative translation adjustment in the years ended December 28, 2002 and December 29, 2001, respectively.
Bausch & Lomb 74 Annual Report 2002
At December 28, 2002, the company had designated foreign denominated intercompany loans with a notional amount of $130.1 as hedges of net investments in non-U.S. subsidiaries.
19. Forward Equity Contracts
During 2001, the company's Board of Directors authorized the repurchase of up to 2,000,000 shares of the company's Common stock. The company has executed an agreement with a financial institution for the future purchase of such shares through one or more forward purchase transactions. Such purchases, which may have settlement dates as long as two years, can be settled, at the company's election, on a physical share, net cash or net share basis. As of December 28, 2002, the company had entered into forward purchases that expire during March 2003, covering 750,000 shares with an approximate aggregate cost of $30.9, which upon settlement will be recorded as equity in the company's consolidated financial statements. An estimated fair value liability of $4.4 was associated with these contracts based on the closing market price of $35.35 as of December 28, 2002, for the company's stock. A 10% change in the company's stock price from December 28, 2002 would increase or decrease, as applicable, the fair value li ability of the shares by $2.7.
20. Stock Compensation Plans
The company sponsors several stock-based compensation plans, all of which are accounted for under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, as amended. Accordingly, given the fixed nature of the equity instruments granted under such plans, no compensation cost has been recognized for the company's stock option plans or its employee stock purchase plan. Had compensation expense for the company's fixed options been determined consistent with SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123, the company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Net Income |
Basic Earnings Per Share |
Diluted Earnings Per Share |
|||||
As Reported |
Pro Forma |
As Reported |
Pro Forma |
As Reported |
Pro Forma |
||
2002 |
$72.5 |
$58.1 |
$1.35 |
$1.08 |
$1.34 |
$1.07 |
|
2001 |
21.2 |
8.4 |
0.39 |
0.15 |
0.39 |
0.15 |
|
2000 |
83.4 |
70.0 |
1.54 |
1.29 |
1.52 |
1.28 |
The Stock Incentive Plan has an evergreen provision which provides shares available for grant in each calendar year, equal to three percent of the total number of outstanding shares of Common stock as of the first day of each such year. In October 2002, the company's Board of Directors amended the plan to eliminate the evergreen feature and provide a pool of shares of 1,600,000 to be available for future grants.
The company adopted a stock incentive plan for non-officers effective January 22, 2001. The number of shares available for grant each year shall be no greater than two percent of the total number of outstanding shares of Common stock as of the first day of each such year. Options and awards under this plan may be granted only to employees of the company or any subsidiary corporation of the company who are neither officers nor directors of the company. Effective January 1, 2003, no additional shares will be made available for use under this plan.
Stock Options
The company issues stock options, which typically vest ratably over three years and expire ten years from the grant date. Vesting is contingent upon a continued employment relationship 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 issued each year:
2002 |
2001 |
2000 |
|
Risk-free interest rate |
2.87% |
3.61% |
5.13% |
Dividend yield |
1.21% |
2.29% |
1.84% |
Volatility factor |
38.39% |
48.20% |
46.87% |
Weighted average expected life (years) |
5 |
3 |
3 |
Bausch & Lomb 75 Annual Report 2002
The weighted average value of options granted was $12.41, $12.97 and $19.52, in 2002, 2001 and 2000, respectively.
A summary of the status of the company's fixed stock option plans at year-end 2002, 2001 and 2000 is presented below:
2002 |
2001 |
2000 |
||||||||||
|
Weighted |
|
Weighted |
|
Weighted |
|||||||
Outstanding at beginning of year |
6,072 |
$49.87 |
4,966 |
$54.69 |
4,378 |
$51.69 |
||||||
Granted |
1,858 |
37.74 |
2,072 |
41.24 |
1,465 |
59.13 |
||||||
Exercised |
(70) |
35.81 |
(108) |
41.43 |
(612) |
41.56 |
||||||
Forfeited |
(800) |
51.78 |
(858) |
58.00 |
(265) |
59.90 |
||||||
Outstanding at year end |
7,060 |
$46.60 |
6,072 |
$49.87 |
4,966 |
$54.69 |
||||||
Options exercisable at year end |
4,242 |
3,969 |
2,751 |
The following represents additional information about fixed stock options outstanding at December 28, 2002:
Options Outstanding |
Options Exercisable |
|||||||
|
|
Weighted Average |
Weighted |
|
Weighted |
|||
$26.00 to 40.49 |
2,902 |
7.9 |
$36.40 |
1,122 |
$34.09 |
|||
40.50 to 45.49 |
1,871 |
6.0 |
43.93 |
1,054 |
43.24 |
|||
45.50 to 55.49 |
716 |
4.1 |
50.12 |
709 |
50.16 |
|||
55.50 to 65.49 |
852 |
6.7 |
61.97 |
638 |
61.97 |
|||
65.50 to 75.00 |
719 |
5.8 |
72.97 |
719 |
72.97 |
|||
7,060 |
6.6 |
$46.60 |
4,242 |
$49.83 |
Stock Awards
The company issues restricted stock awards to officers and other key personnel. These awards have vesting periods up to five years with vesting criteria, which in 2002 included the attainment of certain average sales and cumulative earnings per share targets, and continued employment until applicable vesting dates. Prior to 2002, these awards were based upon the attainment of certain Economic Value Added (EVA) targets. The company defines EVA as net operating profit after tax less a capital charge calculated as average capital employed multiplied by the company's cost of capital. EVA is not the same as, nor is it intended to be, a measure of operating performance in accordance with generally accepted accounting principles.
Compensation expense is recorded based on applicable vesting criteria and, for those awards with performance goals, as such goals are met. In 2002, 2001 and 2000, 379,422, 101,378 and 143,585 shares related to such awards were granted at weighted average market values of $37.36, $45.68 and $55.12 per share, respectively. As of December 28, 2002, 425,440 awards remain outstanding. The compensation expense relating to stock awards in 2002, 2001 and 2000 was $7.3, $1.1 and $0.3, respectively.
21. Other Matters
On April 13, 2001 a shareholder class action lawsuit was filed in the U.S. District Court for the Western District of New York. Four other similar lawsuits were filed in both the Western and Southern Districts of New York, with the company's Chief Financial Officer, Stephen C. McCluski, and former Chairman and Chief Executive Officer, William M. Carpenter, and former President, Carl E. Sassano, named as defendants. The complaints allege that the value of the company's stock was inflated artificially by alleged false and misleading statements about expected financial results. The plaintiffs seek to represent a class of shareholders who purchased company common stock between January 27, 2000 and August 24, 2000. On October 15, 2001 all lawsuits were consolidated in the U.S. District Court for the Western District of New York. The company intends to defend itself vigorously against these claims and has filed a motion to dismiss the consolidated action. The company cannot at this time estimate with any certainty the impact of these claims on its financial position.
Bausch & Lomb 76 Annual Report 2002
The company is currently involved in five pending patent proceedings relating to silicon hydrogel contact lens technology, including its PureVision contact lens product line. Four of these proceedings were commenced by CIBA Vision Corporation (CIBA) and related entities, in each case alleging that the PureVision lens product infringes intellectual property held by them. The first of these lawsuits was filed on March 8, 1999 in the U.S. District Court for the Northern District of Georgia, followed by other lawsuits commenced in the Federal Court of Melbourne, Australia (filed on February 29, 2000), the U.S. District Court for the District of Delaware (filed on May 3, 2001), and the Administrative Court of Duesseldorf, Germany (filed on September 7, 2001). In the Georgia matter, the parties are conducting discovery and the company has filed two motions for summary judgment. In the Australia matter, the parties are in the pleading stage and the Court has set a tria l date of October 6, 2003. In the German matter, the company has filed a motion to stay the proceeding pending resolution of the company's opposition to the validity of the patents at issue. In the Delaware matter, the trial court ruled on June 26, 2002, that the company's PureVision product infringes a patent owned by Wesley Jessen Corporation, a subsidiary of CIBA. The Court ordered that the company discontinue the manufacture and sale of its PureVision lens product in the United States. This decision was affirmed by the United States Court of Appeals for the Federal Circuit on February 12, 2003. The financial impact of the Delaware decision is described below. The company intends to defend itself vigorously against all claims asserted by CIBA.
The fifth related proceeding was commenced by the company on November 6, 2001, when the company filed a patent infringement lawsuit against CIBA in the U.S. District Court for the Western District of New York relative to a patent the company holds for hydrogel materials. CIBA has filed two motions for summary judgment in this action. The Court has heard argument on one motion and has reserved decision. The second motion has been briefed by the parties and a motion hearing date has not been established. The company intends to pursue vigorously its claims against CIBA in this action.
The company has already reported the financial impact of the District Court's decision in the Delaware matter in its quarterly reports on Form 10-Q for the quarters ended June 29, 2002 and September 28, 2002. Specifically, second-half revenues and earnings for 2002 were reduced from expectations established prior to the date of the original decision as a result of this court decision. The earnings per share decline reflected the impact of lost margin from the sales decline, other incremental costs (such as underabsorbed overhead, relocation of equipment, validation and start-up) associated with the transfer of manufacturing, which were reported in ongoing operations, as well as severance costs of $3.7 related to employees in the U.S. facility, which were charged to restructuring expense in the third quarter of 2002, as described in Note 5 - Restructuring Charges and Asset Write-offs. The company cannot at this time estimate with any certainty the impact on its f inancial position of the other lawsuits filed by CIBA and related entities and the patent infringement lawsuit filed by the company against CIBA.
The company is engaged in various lawsuits, claims, investigations and proceedings including patent, trademark, commercial and environmental matters that are in the ordinary course of business. The company cannot at this time estimate with any certainty the impact of such matters on its financial position.
Bausch & Lomb 77 Annual Report 2002
22. Quarterly Results, Stock Prices And Selected Financial Data
Quarterly Results (unaudited)
The following table presents reported net sales, gross profit (net sales less cost of products sold), net income (loss) and earnings (loss) per share for each quarter during the past two years. Net sales and gross profit are from continuing operations and are reported on the same basis as amounts in the accompanying Statements of Income on page 46.
Earnings (Loss) Per Share |
|||||
Net Sales 1 |
Gross Profit |
Net Income (Loss) |
Basic |
Diluted |
|
2002 |
|||||
First |
$ 414.2 |
$ 232.8 |
$ 8.8 2 |
$ 0.16 |
$ 0.16 |
Second |
458.4 |
261.3 |
21.9 |
0.41 |
0.40 |
Third |
466.7 |
261.2 |
9.4 3 |
0.18 |
0.17 |
Fourth |
477.4 |
264.3 |
32.4 |
0.60 |
0.60 |
$1,816.7 |
$1,019.6 |
$72.5 |
$ 1.35 |
$ 1.34 |
|
2001 |
|||||
First |
$ 402.6 |
$ 214.6 |
$(1.0) 4 |
$(0.02) |
$ (0.02) |
Second |
401.7 |
216.6 |
6.8 |
0.13 |
0.13 |
Third |
419.4 |
229.0 |
23.3 5 |
0.43 |
0.43 |
Fourth |
441.8 |
241.6 |
(7.9) 6 |
(0.15) |
(0.15) |
$1,665.5 |
$ 901.8 |
$21.2 |
$ 0.39 |
$ 0.39 |
The amounts in the following references are all presented after taxes.
1
Prior year amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.2
Includes restructuring charges and asset write-offs of $15.4 related to the implementation of Phase II of the company's 2001 restructuring program designed to reduce ongoing operating costs (see Note 5 - Restructuring Charges and Asset Write-offs), a one-time early liquidation premium of $7.0 paid to an outside partner (see Note 14 - Minority Interest) and a gain of $18.1 in connection with the sale of a stock investment (see Note 10 - Other Short- and Long-Term Investments).3
Includes restructuring charges and asset write-offs of $14.9 related to the company's profitability improvement program announced in July 2002, severance of $2.4 associated with the transfer of PureVision manufacturing from the U.S. to Waterford, Ireland, partially offset by a $0.6 reversal of previously recorded restructuring reserves for the company's 2001 restructuring program (see Note 5 - Restructuring Charges and Asset Write-offs).4
Includes restructuring charges and asset write-offs of $11.0 related to the implementation of Phase II of the company's new organizational structure announced in 2000 (see Note 5 - Restructuring Charges and Asset Write-offs) as well as a gain of $3.5 from the sale of a stock investment.5
Includes severance costs of $1.8 for the company's former chief executive officer as well as a gain of $9.1 from the sale of a stock investment.6
Includes hiring costs of $4.6 for the company's current chief executive officer, a charge of $21.1 related to the settlement of litigation impacting the gain on discontinued operations related to the eyewear segment as well as restructuring charges and asset write-offs of $5.4 related to Phase I of the company's 2001 restructuring program designed to reduce ongoing operating costs (see Note 5 - Restructuring Charges and Asset Write-offs), partially offset by the reversal of previously recorded restructuring reserves for the company's 2000 restructuring program totaling $2.6.Quarterly Stock Prices (unaudited)
The company's Common stock is listed on the New York Stock Exchange and is traded under the symbol BOL. There were approximately 6,200 and 6,400 Common shareholders of record at year-end 2002 and 2001, respectively. The following table shows the price range of the Common stock for each quarter for the past two years:
2002 |
2001 |
|||
High |
Low |
High |
Low |
|
First |
$44.80 |
$36.35 |
$54.93 |
$35.50 |
Second |
42.56 |
32.70 |
49.63 |
35.70 |
Third |
34.70 |
27.17 |
38.45 |
27.56 |
Fourth |
38.39 |
27.80 |
37.90 |
27.20 |
Bausch & Lomb 78 Annual Report 2002
Selected Financial Data (unaudited)
Dollar Amounts In Millions
2002 |
2001 |
2000 |
1999 |
1998 |
Results For The Year |
|||||
Net sales 1,2 |
$1,816.7 |
$1,665.5 |
$1,718.7 |
$1,720.6 |
$1,562.4 |
Income from Continuing Operations 1 |
72.5 |
42.0 |
82.0 |
102.7 |
55.6 |
Net Income |
72.5 |
21.2 |
83.4 |
444.8 |
25.2 |
Continuing Operations - Basic earnings per share 1 |
1.35 |
0.78 |
1.51 |
1.79 |
1.00 |
Net Income - Basic earnings per share |
1.35 |
0.39 |
1.54 |
7.76 |
0.45 |
Continuing Operations - Diluted earnings per share 1 |
1.34 |
0.78 |
1.49 |
1.75 |
0.99 |
Net Income - Diluted earnings per share |
1.34 |
0.39 |
1.52 |
7.59 |
0.45 |
Dividends per share |
0.65 |
1.04 |
1.04 |
1.04 |
1.04 |
Year End Position |
|||||
Working capital |
$ 455.7 |
$ 693.7 |
$ 899.8 |
$1,235.7 |
$ 773.7 |
Total assets |
2,907.8 |
2,993.5 |
3,239.3 |
3,438.6 |
3,553.1 |
Short-term debt |
187.9 |
123.3 |
235.2 |
46.9 |
191.5 |
Long-term debt |
656.2 |
703.2 |
763.1 |
977.0 |
1,281.3 |
Shareholders' equity |
1,017.8 |
975.0 |
1,039.4 |
1,234.0 |
845.0 |
Other Ratios And Statistics |
|||||
Return on sales from continuing operations 2 |
4.0% |
2.5% |
4.8% |
6.0% |
3.6% |
Return on average Shareholders' equity |
7.4% |
2.1% |
7.9% |
43.3% |
3.1% |
Return on invested capital |
6.0% |
3.1% |
6.1% |
21.7% |
3.8% |
Return on average total assets |
2.5% |
0.7% |
2.3% |
13.0% |
0.7% |
Effective income tax rate for continuing operations |
|
|
|
|
|
Current ratio |
1.5 |
2.0 |
2.1 |
2.9 |
1.9 |
Total debt to Shareholders' equity |
82.9% |
84.8% |
96.0% |
83.0% |
174.3% |
Total debt to capital |
45.3% |
45.9% |
49.0% |
45.3% |
63.5% |
Capital expenditures |
$ 91.9 |
$ 96.4 |
$ 95.0 |
$ 155.9 |
$ 201.5 |
1
Amounts have been modified, as necessary, to reflect discontinued operations related to certain divestitures during 1999.2
Prior year amounts have been reclassified to reflect the adoption of EITF 01-09 as described in Note 1 - Accounting Policies.Bausch & Lomb 79 Annual Report 2002
Report Of Management
The 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 auditing standards generally accepted in the United States of America, which requires a consideration of internal controls to determine the nature, timing and extent of audit testing.
Management reviews the recommendations of the internal auditors and independent accountants. Control procedures have been implemented or revised as appropriate to respond to these recommendations. In management's opinion, as of December 28, 2002, the internal control system was functioning effectively and accomplished the objectives discussed herein.
/s/ Ronald L. Zarrella |
/s/ Stephen C. McCluski |
|
Ronald L. Zarrella |
Stephen C. McCluski |
Report Of The Audit Committee
The Audit Committee of the Board of Directors, which held five meetings during 2002, is composed of five outside directors. The chair of the committee is Jonathan S. Linen. The other members are Domenico De Sole, Ruth R. McMullin, Linda Johnson Rice and William H. Waltrip.
The Audit Committee meets with the independent accountants, management and the internal auditors to provide reasonable assurance that management fulfills its responsibilities in the preparation of the financial statements and in the maintenance of an effective system of internal controls. The Audit Committee reviews the performance and fees of the independent accountants, recommends their appointment and meets with them and the internal auditors, with and without management present, to discuss the scope and results of their audit work. Both the independent accountants and the internal auditors have full access to the Audit Committee.
/s/ Jonathan S. Linen |
||
Jonathan S. Linen |
Bausch & Lomb 80 Annual Report 2002
Report Of Independent Accountants
To the Shareholders and Board of Directors of Bausch & Lomb Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and changes in Shareholders' equity present fairly, in all material respects, the financial position of Bausch & Lomb Incorporated and its subsidiaries at December 28, 2002 and December 29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 includ es 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 our opinion.
As discussed in Notes 1, 2, 6, 8 and 9 of the consolidated financial statements, as of December 30, 2001, the Company ceased amortization of goodwill to conform with the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
/s/ PricewaterhouseCoopers LLP
Rochester, New York
January 27, 2003
Bausch & Lomb 81 Annual Report 2002
DIRECTORS & OFFICERS
Directors
Ronald L. Zarrella
Chairman and Chief Executive Officer
Bausch & Lomb Incorporated
Franklin E. Agnew
Business Consultant
Domenico De Sole
President and Chief Executive Officer
Gucci Group N.V.
Jonathan S. Linen
Vice Chairman
American Express Company
Ruth R. McMullin
Chairperson, Eagle-Picher Personal Injury Settlement Trust
John R. Purcell
Chairman and Chief Executive Officer
Grenadier Associates Ltd.
Linda Johnson Rice
President and Chief Executive Officer
Johnson Publishing Company
William H. Waltrip
Chairman of the Board
Technology Solutions Company
Barry W. Wilson
Senior Vice President and President, Medtronic International
Medtronic, Inc.
Kenneth L. Wolfe
Retired, Chairman
Hershey Foods Corporation
Officers
Ronald L. Zarrella
Chairman and Chief Executive Officer
Senior Vice Presidents
Gary M. Aron
Research, Development and Engineering
Alan H. Farnsworth
Europe, Middle East and Africa Region
Dwain L. Hahs
Global Supply Chain Management
John M. Loughlin
Asia Region
Stephen C. McCluski
Chief Financial Officer
David R. Nachbar
Human Resources
Robert B. Stiles
General Counsel
Vice Presidents
Geoffrey F. Ide
Japan
Barbara M. Kelley
Communications and Investor Relations
Jurij Z. Kushner
Controller
Angela J. Panzarella
Global Vision Care
Gary M. Phillips, M.D.
Global Pharmaceuticals
Alan H. Resnick
Treasurer
Efrain Rivera
Latin America and Canada
Kamal K. Sarbadhikari
Global Surgical
Marie L. Smith
Chief Information Officer
Secretary
Jean F. Geisel
Assistant Secretary
A. Robert D. Bailey
Bausch & Lomb 82 Annual Report 2002
CORPORATE INFORMATION
Corporate Headquarters
Bausch & Lomb
One Bausch & Lomb Place
Rochester, New York 14604
(585) 338-6000
(800) 344-8815
Bausch & Lomb on the Internet
Corporate, product, financial and shareholder information, including news releases, financial filings and stock quotes are available at our worldwide Web site:
www.bausch.com
Bausch & Lomb News on Demand
Company news releases are available on our Web site or by calling toll-free:
(800) 344-8815
Financial Literature
A copy of the company's 2002 Annual Report on Form 10-K (without Exhibits) will be furnished, without charge, to any person receiving a proxy solicitation, on the written request of any such person. Such written request shall be directed to our Investor Relations Department at the address above.
Copies of prior years' annual reports and financial reports filed with the Securities and Exchange Commission are available on our Web site, by mail (attn: Investor Relations) or by calling:
(888) 884-8702
(585) 338-5757
Investor Relations
Security analysts and shareholders seeking information concerning company operations, shareholder programs or dividend policy may contact:
Daniel L. Ritz
Director, Investor Relations
(585) 338-5802
Daniel.L.Ritz@bausch.com
Media Inquiries
News media representatives and others seeking general information may contact:
Margaret Graham
Director, Corporate Communications
(585) 338-5469
Margaret.Graham@bausch.com
Transfer Agent
Shareholders seeking information regarding their individual accounts or dividend payments may contact our stock transfer agent:
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606
(888) 581-9377
www.melloninvestor.com
Dividend Reinvestment Plan
The plan is available to all shareholders of Bausch & Lomb stock. Under the plan, shareholders may elect to have their cash dividends automatically invested in additional shares of the company's common stock. Shareholders may also elect to make cash contributions of up to $60,000 per year to purchase additional shares. For additional information contact:
Mellon Bank, N.A.
Investment Services
P.O. Box 3339
South Hackensack, NJ 07606
(888) 581-9377
www.melloninvestor.com
Stock Listing:
The common stock of the corporation is traded under the symbol BOL on the New York Stock Exchange.
Forward-Looking Statements
This annual report contains, among other things, certain statements of a forward-looking nature relating to future events or the future business performance of Bausch & Lomb. Such statements involve a number of risks and uncertainties including those concerning economic conditions, currency exchange rates, government pricing changes and initiatives with respect to healthcare products, product development and rationalization, enrollment and completion of clinical trials, regulatory approvals including successful execution of regulatory filing strategies, the outcome of litigation, product introductions, the financial well-being of key customers, the successful execution of marketing strategies, the continued successful implementation of its efforts in managing and reducing costs and expenses, continued positive relations with third party financing sources, as well as the risk factors listed from time to time in the Company's SEC filings, including but not limited to the Form 10-K for the year ended December 28, 2002.
Trademarks
The trademarks of Bausch & Lomb Incorporated and its subsidiary companies referred to in this report are:
Akreos
Alrex
AMVISC
AMVISC Plus
Bausch & Lomb
Boston
Desomedine
Envision TD
Hansatome
Hydroview
Indocollyre
Lightning
Lotemax
Medalist
Millennium
Millennium Endolase
Minims
Mport
Ocuvite
Ocuvite PreserVision
Opcon-A
Optima FW
Orbscan
PureVision
ReNu
ReNu MultiPlus
Retisert
Sensitive Eyes
SofLens
SofLens Comfort
SofLens66
SoFlex
Technolas
Vidisic
Vitrasert
Zyoptix
Zywave
Carteol is a trademark of Otsuka Pharmaceutical Co., Ltd.
DuraSite is a trademark of InSite Vision Incorporated
EVA is a trademark of Stern Stewart & Co.
This report could not have been produced without the hospitality of Gary Aron, Sr. Vice President Research, Development and Engineering, and the members of his team. Special thanks to the following individuals who assisted in our photographic sessions, many of whom appear in the photographs throughout this report: Maryja Andrews, Susan Beaver, John Brunette, Jr., Denise Callahan, Daniel Cissell, Stephen Costanzo, Alyce Dobie, George Green, Kevin Hall, William Hiller, Suzanne Groemminger, Charles Henning, Daniel Hook, Dharmendra Jani, Bill Lever, X. Michael Liu, Linda Mosack, Sharon Myers, Marie Rapson, Zenah Rodriguez, Krishna Sarbadhikari, Bobbi Simmons-Sarnov, Tracy Starsky, Ronda Tozier, Wenyan Yan.
Design: Bertz Design Group, Middletown, Connecticut
Printing: Finlay Brothers Printing, Bloomfield, Connecticut
Photography:
Len Rubenstein, Scituate, Massachusetts
Timothy J. Toal, Rochester, New York
Ó
2003 Bausch & Lomb Incorporated
All Rights Reserved Worldwide
[RECYCLE SYMBOL]
This paper contains 10% of post-consumer waste fiber.
Bausch & Lomb 83 Annual Report 2002
[BAUSCH & LOMB LOGO]
BAUSCH & LOMB INCORPORATED
ONE BAUSCH & LOMB PLACE
ROCHESTER, NEW YORK
14604
Back Cover
Bausch & Lomb Incorporated
|
Jurisdiction Under |
Bausch & Lomb Argentina S.R.L. |
Argentina |
Bausch & Lomb (Australia) Pty. Limited |
Australia |
Bausch & Lomb (Bermuda) Limited |
Bermuda |
Bausch & Lomb B.V. |
Netherlands |
Bausch & Lomb B.V.B.A. |
Belgium |
Bausch & Lomb-Lord (BVI) Incorporated |
British Virgin Islands |
Bausch & Lomb Canada, Inc. |
Canada |
Bausch & Lomb China, Inc |
Delaware |
B&L (China) Investment Group Ltd. |
China |
B&L CRL Inc. |
Delaware |
Bausch & Lomb Domestic Finance Corp. |
Delaware |
B&L Domestic Holdings Corp. |
Delaware |
Dr. Mann Pharma |
Germany |
Bausch & Lomb S.A. |
Spain |
Beijing Bausch & Lomb Eyecare Company, Ltd. |
China |
B&L Financial Holdings Corp. |
Delaware |
Bausch & Lomb Danmark A/S |
Denmark |
Bausch & Lomb Foreign Sales Corporation |
Barbados |
Bausch & Lomb France S.A.S. |
France |
BCF S.A.S. |
France |
Bausch & Lomb Fribourg SA |
Switzerland |
Bausch & Lomb GmbH |
Austria |
Bausch & Lomb (Hong Kong) Limited |
Hong Kong |
Bausch & Lomb Eyecare (India) Private Limited |
India |
BL Industria Otica Ltda. |
Brazil |
Bausch & Lomb International, Inc. |
New York |
Iolab Corporation |
California |
Bausch & Lomb Ireland |
Ireland |
Bausch & Lomb IOM S.p.A. |
Italy |
B.L.J. Company Limited |
Japan |
Bausch & Lomb (Jersey) Limited |
Jersey |
Bausch & Lomb Korea, Ltd. |
Korea |
Bausch & Lomb (Malaysia) Sdn. Bhd. |
Malaysia |
Bausch & Lomb Mexico, S.A. de C.V. |
Mexico |
Bausch & Lomb (New Zealand) Limited |
New Zealand |
Bausch & Lomb Nordic AB |
Sweden |
Bausch & Lomb Oftal S.p.A. |
Italy |
Bausch & Lomb Opticare, Inc. |
New York |
Bausch & Lomb Pharmaceuticals, Inc. |
Delaware |
Bausch & Lomb (Philippines), Inc. |
Philippines |
P. T. Bausch & Lomb Indonesia (Distributing) |
Indonesia |
P. T. Bausch & Lomb Manufacturing |
Indonesia |
Bausch & Lomb Realty Corporation |
New York |
RHC Holdings, Inc. |
Delaware |
Bausch & Lomb (Shanghai) Trading Company Limited |
China |
Sight Pharmaceuticals Incorporated |
Delaware |
Sight Savers, Inc. |
Delaware |
Bausch & Lomb Scotland Limited |
England and Wales |
Bausch & Lomb (Singapore) Pte. Ltd. |
Singapore |
Bausch & Lomb (South Africa) (Pty) Ltd. |
South Africa |
Bausch & Lomb South Asia, Inc. |
Delaware |
South Asia Management Company Sdn. Bhd. |
Malaysia |
B&L SPAF Inc. |
Delaware |
B&L VPLEX Holdings, Inc. |
California |
Bausch & Lomb Surgical GmbH |
Germany |
Bausch & Lomb Surgical (U.K.) Limited |
England and Wales |
Bausch & Lomb Taiwan Limited |
Taiwan |
Bausch & Lomb (Thailand) Limited |
Thailand |
Technolas GmbH |
Germany |
Bausch & Lomb Saglik Ve Optik Urunleri Ticaret A.S. |
Turkey |
Bausch & Lomb U.K. Limited |
England and Wales |
Exhibit 24
[Bausch & Lomb Logo]
POWER OF ATTORNEY
The undersigned directors of Bausch & Lomb Incorporated (the "Company"), each hereby constitutes and appoints Ronald L. Zarrella 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 28, 2002, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1933 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 25th day of February 2003.
/s/Franklin e. Agnew Franklin E. Agnew |
/s/Linda Johnson Rice Linda Johnson Rice |
/s/Domenico De Sole Domenico De Sole |
/s/William H. Waltrip William H. Waltrip |
/s/Jonathan S. Linen Jonathan S. Linen |
/s/Barry W. Wilson Barry W. Wilson |
/s/Ruth R. McMullin Ruth R. McMullin |
/s/Kenneth L. Wolfe Kenneth L. Wolfe |
/s/John R. Purcell John R. Purcell |
/s/Ronald L. Zarrella Ronald L. Zarrella |
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 2-56066, 2-85158, 33-15439, 33-35667, 333-03611, 333-18057, 333-75924, 333-75922, and 333-75920) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-90468) of Bausch & Lomb Incorporated of our report dated January 27, 2003 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation of our report dated January 27, 2003 on the financial statement schedule, which appears in this Form 10-K.
/s/
PricewaterhouseCoopers LLP
Rochester, New York
March 21, 2003
EXHIBIT 99(a)
Bausch & Lomb Incorporated
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Ronald L. Zarrella, Chairman and Chief Executive Officer of Bausch & Lomb Incorporated (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1. |
the Annual Report on Form 10-K of the Company for the annual period ended December 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Ronald L. Zarrella Ronald L. Zarrella Chairman and Chief Executive Officer |
March 14, 2003 |
EXHIBIT 99(b)
Bausch & Lomb Incorporated
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Stephen C. McCluski, Senior Vice President and Chief Financial Officer of Bausch & Lomb Incorporated (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1. |
the Annual Report on Form 10-K of the Company for the annual period ended December 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Stephen C. McCluski Senior Vice President and Chief Financial Officer |
March 14, 2003 |
EXHIBIT (99)c
Forward-looking statements include statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts. When used in this Annual Report on Form 10-K, the words "anticipate", "should", "expect", "estimate", "project", "will", "are likely" and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this Annual Report on Form 10-K under the heading "General Development of the Business" and elsewhere 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, which may affect the company's performance. Where possible, specific factors that may impact performance materially have been identified in connection with specific forward-looking statement s. Additional risks and uncertainties include, without limitation, the impact of competition, seasonality and general economic conditions in the global lens and lens care, ophthalmic cataract and refractive and pharmaceutical markets where the company's businesses compete, changes in global and localized economic and political conditions, effects of war or terrorism, changing currency exchange rates, events affecting the ability of the company to timely deliver its products to customers, including those which affect the company's carriers' ability to perform delivery services, changing trends in practitioner and consumer preferences and tastes, changes in technology, medical developments relating to the use of the company's products, legal proceedings initiated by or against the company, including those related to patents and other intellectual property held by the company, the impact of company performance on its financing costs, changes in government regulation of the company's products and operations, cha nges in governmental laws and regulations relating to the import and export of products, changes in private and regulatory schemes providing for the reimbursement of patient medical expenses, changes in the company's credit ratings, or the cost of access to sources of liquidity, the company's ability to maintain positive relationships with third party financing resources, the financial well-being and commercial success of key customers and suppliers, changes in the supply of raw materials used in the manufacture of the company's products, significant changes in tax rates or policies or in rates of inflation, changes in accounting principles and the application of such principles to the company, the performance by third parties upon whom the company relies for the provision of goods or services, the ability of the company to successfully execute marketing strategies, the ability of the company to secure and maintain intellectual property protections, including patent rights, with respect to key technologies, difficulties or delays in the development, laboratory and clinical testing, regulatory approval, manufacturing, release or marketing of products, the successful completion and integration of acquisitions by the company, the successful relocation of certain manufacturing processes, the continued successful implementation of efforts in managing and reducing costs and expenses, the effect of changes within the company's organization, including the selection and development of the company's management team and such other factors as are described in greater detail in the company's other filings with the Securities and Exchange Commission, including the Current Report on Form 8-K dated June 14, 2002.