-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kqpp+ZTcsNuow7shjaTZK1jqD7J3m8z3WsViERqxLqElPDExDti2NgCQRwSrOg+o hBhEUr8dJv+PEmz/6jO0MQ== 0000010427-96-000013.txt : 19960318 0000010427-96-000013.hdr.sgml : 19960318 ACCESSION NUMBER: 0000010427-96-000013 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940924 FILED AS OF DATE: 19960315 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAUSCH & LOMB INC CENTRAL INDEX KEY: 0000010427 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 160345235 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-04105 FILM NUMBER: 96535338 BUSINESS ADDRESS: STREET 1: ONE BAUSCH & LOMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: (716) 338-6000 MAIL ADDRESS: STREET 1: ONE CHASE SQUARE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14601-0054 10-Q/A 1 10-Q/A THIRD QUARTER 1994 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended: September 24, 1994 Commission File Co. Number: 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) IRS Employer Identification No. 16-0345235 One Bausch & Lomb Place, Rochester NY 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 338-6000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No. As of September 24, 1994 there were outstanding 59,138,894 shares of Common Stock, consisting of 58,573,624 shares of Common Stock and 565,270 shares of Class B Stock which are identical with respect to dividend and liquidation rights and vote together as a single class for all purposes. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. As more fully described in Note A - "Restatement of Financial Information", financial information in this filing has been restated to reflect the decision to account for shipments under a fourth quarter 1993 U.S. contact lens distributor program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to the program which had been previously recognized in 1994. Additionally, a restatement was made to correct the improper recording of certain 1993 sunglass distributor sales in Southeast Asia and to reverse related sales returns which had been previously recorded in 1994. Unaudited consolidated financial statements of Bausch & Lomb Incorporated and Consolidated Subsidiaries for the third quarter of 1994 and 1993 are presented on the following pages. The audited balance sheet at December 25, 1993 is presented for comparative purposes. Financial statements for the nine months ended September 24, 1994 have been prepared by the Company in accordance with its usual accounting policies and are based in part on approximations. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements in accordance with generally accepted accounting principles have been included. All such adjustments were of a normal recurring nature. BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF EARNINGS Dollar Amounts In Thousands - Except Per Share Data
Third Quarter Ended Nine Months Ended Sept. 24, Sept. 25, Sept. 24, Sept.25, 1994* 1993* 1994* 1993* Net Sales $486,059 $490,136 $1,411,072 $1,377,170 Costs And Expenses Cost of products sold 248,019 216,652 675,920 614,267 Selling, administrative and general 178,343 174,746 524,054 507,357 Research and development 14,802 14,495 45,468 43,178 -------- ------- ---------- ---------- 441,164 405,893 1,245,442 1,164,802 -------- ------- ---------- ---------- Operating Earnings 44,895 84,243 165,630 212,368 Other (Income) Expense Investment income (8,553) (1,764) (26,434) (9,476) Interest expense 10,182 7,446 29,409 24,960 Gain from foreign currency, net (1,084) (2,051) (2,222) (10,043) -------- ------- ---------- ---------- 545 3,631 753 5,441 -------- ------- ---------- ---------- Earnings Before Income Taxes And Minority Interest 44,350 80,612 164,877 206,927 Provision for income taxes 14,860 27,595 54,104 71,731 -------- ------- ---------- ---------- Earnings Before Minority Interest 29,490 53,017 110,773 135,196 Minority interest in subsidiaries 6,113 995 17,574 3,295 -------- ------- ---------- ---------- Net Earnings $ 23,377 $ 52,022 $ 93,199 $ 131,901 -------- ------- ---------- ---------- Retained Earnings At Beginning Of Period 913,960 838,758 871,680 785,044 Cash Dividends Declared: Common stock, $0.245 and $0.71 per share for 1994 ($0.22 and $0.66 per share for 1993) 14,527 13,089 42,069 39,254 -------- ------- ---------- ---------- Retained Earnings At End Of Period $922,810 $877,691 $ 922,810 $ 877,691 -------- ------- ---------- ---------- -------- ------- ---------- ---------- Net Earnings Per Common Share $ 0.39 $ 0.87 $ 1.56 $ 2.19 -------- ------- ---------- ---------- -------- ------- ---------- ---------- Average Common Shares Outstanding (000s) 59,787 60,151 ---------- ---------- ---------- ---------- *Results have been restated as more fully described in Note A - "Restatement of Financial Information". See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET Dollar Amounts In Thousands
September 24, December 25, 1994* 1993* ASSETS Current Assets Cash and cash equivalents $ 191,978 $ 513,241 Short-term investments, at cost which approximates market 1,782 32,795 Trade receivables, less allowances of $17,678 and $13,753, respectively 313,191 345,139 Inventories, net 320,329 309,754 Deferred income taxes, less valuation allowance of $13,206 73,705 79,897 Other current assets 124,976 102,304 ---------- ---------- 1,025,961 1,383,130 Property, Plant And Equipment, net 545,472 541,061 Goodwill And Other Intangibles, less accumulated amortization of $73,941 and $59,396, respectively 482,553 456,944 Other Investments 425,000 - Other Assets 136,132 111,862 ---------- ---------- Total Assets $2,615,118 $2,492,997 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 281,426 $ 222,642 Current portion of long-term debt 8,601 21,935 Accounts payable 63,477 85,306 Accrued compensation 87,157 66,077 Accrued liabilities 214,972 248,661 Federal and foreign income taxes 69,426 68,882 ---------- ---------- 725,059 713,503 Long-Term Debt, less current portion 330,549 320,953 Other Long-Term Liabilities 127,167 128,328 Minority Interest 426,120 421,031 ---------- ---------- Total Liabilities 1,608,895 1,583,815 ---------- ---------- Shareholders' Equity 4% Cumulative Preferred Stock, par value $100 per share - - Class A Preferred Stock, par value $1 per share - - Common Stock, par value $0.40 per share, 60,198,322 shares issued 24,079 24,079 Class B Stock, par value $0.08 per share, 978,603 shares issued (936,348 shares in 1993) 78 75 Capital in excess of par value 89,630 88,101 Cumulative translation adjustment 56,007 8,915 Retained earnings 922,810 871,680 1,092,604 992,850 Common and Class B Stock in treasury, at cost, 2,038,031 shares (2,016,430 shares in 1993) (86,381) (83,668) ---------- ---------- Total Shareholders' Equity 1,006,223 909,182 ---------- ---------- Total Liabilities And Shareholders' Equity $2,615,118 $2,492,997 ---------- ---------- ---------- ---------- *Results have been restated as more fully described in Note A - "Restatement of Financial Information". See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS Dollar Amounts In Thousands
Nine Months Ended Sept. 24, Sept. 25, 1994* 1993* CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 93,199 $131,901 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 62,005 53,666 Amortization of goodwill and other intangibles 12,737 8,657 Increase (decrease) in deferred income taxes 4,881 (2,402) Loss on retirement of fixed assets 10,460 2,155 Exchange gain (3,333) (1,168) Increase in undistributed earnings of subsidiaries 4,113 905 Decrease (increase) in accounts receivable 42,413 (69,509) Decrease (increase) in inventories 1,497 (31,652) Increase in other current assets (18,551) (44,173) (Decrease) increase in accounts payable and accruals (48,028) 24,290 (Decrease) increase in tax reserves (2,227) 18,977 (Decrease) increase in other long-term liabilities (2,641) 2,501 --------- -------- Net cash provided by operating activities 156,525 94,148 CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchases of property, plant and equipment (63,122) (67,749) Acquisition of businesses, net of cash and short-term investments acquired (27,089) (244,197) Other investments (425,000) - Other (21,553) (7,411) --------- -------- Net cash used in investing activities (536,764) (319,357) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common shares (11,211) (25,426) Exercise of stock options 7,631 3,385 Restricted stock awards 2,399 172 Net proceeds from issuance of debt 46,459 59,335 Payment of dividends (40,642) (38,046) --------- -------- Net cash provided by (used in) financing activities 4,636 (580) Effect of exchange rate changes on cash, cash equivalents and short-term investments 23,327 (21,185) --------- -------- Net decrease in cash, cash equivalents and short-term investments (352,276) (246,974) Cash, cash equivalents and short-term investments, beginning of period 546,036 416,773 --------- -------- Cash, cash equivalents and short-term investments, end of period $193,760 $169,799 --------- -------- --------- -------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 23,836 $ 25,230 Income taxes $ 56,789 $ 37,766 *Results have been restated as more fully described in Note A - "Restatement of Financial Information". See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE A: Restatement of Financial Information The Company has restated its financial statements for the year ended December 25, 1993 and the quarter and nine months ended September 24, 1994. This action was taken as a result of an ongoing investigation which identified uncertainties surrounding the execution of a fourth quarter 1993 contact lens sales program and the improper recording of 1993 sunglass sales in Southeast Asia. In the fourth quarter of 1993 a marketing program was initiated to implement a business strategy to shift responsibility for the sale and distribution of a portion of the U.S. traditional contact lens business to optical distributors. Subsequently, this strategy proved unsuccessful and, in the 1994 third quarter, led to the implementation of a new pricing policy for traditional contact lenses and a decision to accept on a one-time basis returns from these distributors. The investigation of this marketing program disclosed instances where unauthorized terms may have been or were offered which were inconsistent with the stated terms and conditions of the program. The resulting uncertainties relating to the execution of this marketing program led to a decision to restate the 1993 financial statements to account for shipments under the program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse of the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. The investigation of Southeast Asia sunglass sales disclosed that in certain instances distributor transactions recorded as revenues in 1993 had not actually resulted from a sale to those customers, and thus were improperly recorded. The 1993 financial statements have been restated to reverse the improperly recorded sales with a corresponding restatement of the 1994 financial statements to reverse the effect of sales returns previously recognized in that period. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments on the Company's financial results as originally reported is summarized below: Dollar Amounts In Thousands - Except Per Share Data
Third Quarter Ended Third Quarter Ended ---------------------------------------------------- September 24,1994 September 25, 1993 ----------------------------------------------------- As Reported As Restated As Reported As Restated ----------------------------------------------------- Net Sales: Healthcare $298,281 $320,556 $325,249 $325,249 Optics 151,166 165,503 173,562 164,887 ----------------------------------------------------- Total $449,447 $486,059 $498,811 $490,136 Business Segment Earnings $ 31,098 $ 54,756 $100,600 $ 96,132 ----------------------------------------------------- ----------------------------------------------------- Net Earnings $ 7,689 $ 23,377 $ 55,753 $ 52,022 ----------------------------------------------------- ----------------------------------------------------- Net Earnings Per Share $ 0.13 $ 0.39 $ 0.93 $ 0.87 ----------------------------------------------------- ----------------------------------------------------- Retained Earnings at end of Period $923,661 $922,810 $881,422 $ 877,691 ----------------------------------------------------- -----------------------------------------------------
Dollar Amounts In Thousands - Except Per Share Data
Nine Months Ended ---------------------------------------------------- September 24,1994 September 25, 1993 ----------------------------------------------------- As Reported As Restated As Reported As Restated ----------------------------------------------------- Net Sales: Healthcare $ 891,626 $ 913,901 $ 854,806 $ 854,806 Optics 479,873 497,171 531,039 522,364 ----------------------------------------------------- Total $1,371,499 $1,411,072 $1,385,845 $1,377,170 Business Segment Earnings $ 173,431 $ 198,414 $ 251,964 $ 247,496 ----------------------------------------------------- ----------------------------------------------------- Net Earnings $ 76,405 $ 93,199 $ 135,632 $ 131,901 ----------------------------------------------------- ----------------------------------------------------- Net Earnings Per Share $ 1.28 $ 1.56 $ 2.25 $ 2.19 ----------------------------------------------------- ----------------------------------------------------- Retained Earnings at end of Period $ 923,661 $ 922,810 $ 881,422 $ 877,691 ----------------------------------------------------- -----------------------------------------------------
Additionally retained earnings at December 31, 1994 originally reported at $889,325,000 has been restated to $871,680,000. NOTE B: Earnings Per Share Net earnings per Common share are based on the weighted average number of Common and Class B Shares outstanding during the period, adjusted for the assumed conversion of dilutive stock options. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options have been used to purchase Common Shares at current market prices, and the resulting net additional Common shares are included in the calculation of average Common shares outstanding. The number of Common shares used to calculate net earnings per Common share were 59,787,024 at September 24, 1994 and 60,151,061 at September 25, 1993. See Exhibit 11 filed with this Report for details regarding the computation of earnings per share. NOTE C: Inventories Inventories consisted of the following: (Dollar Amounts In Thousands)
September 24, December 25, 1994 1993 Raw materials and supplies $87,086 $ 66,768 Work in process 27,738 24,640 Finished products 213,444 226,518 --------- -------- 328,268 317,926 Less - Reserve for valuation of certain U.S. inventories at last-in, first-out cost 7,939 8,172 --------- -------- $320,329 $309,754 --------- -------- --------- --------
NOTE D: Property, Plant And Equipment Major classes of property, plant and equipment consisted of the following: (Dollar Amounts In Thousands)
September 24, December 25, 1994 1993 Land $ 21,410 $ 20,784 Leasehold improvements 32,809 25,530 Buildings 361,673 350,173 Machinery and equipment 582,275 542,912 --------- -------- 998,167 939,399 Less - Accumulated depreciation 452,695 398,338 --------- -------- $545,472 $541,061 --------- -------- --------- --------
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This financial review, which should be read in conjunction with the accompanying financial statements, contains management's discussion and analysis of the Company's financial results, liquidity and progress toward stated business objectives. The focus of this review is on the underlying business reasons for significant changes and trends affecting sales, operating earnings and financial condition. As more fully described in Note A - "Restatement of Financial Information", financial information in this filing has been restated to reflect the decision to account for shipments under a fourth quarter 1993 U.S. contact lens distributor program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. Additionally, a restatement was made to correct the improper recording of certain 1993 sunglass distributor sales in Southeast Asia and to reverse related sales returns which had been previously recorded in 1994. The discussion which follows reflects the restated financial information. RESULTS OF OPERATIONS Net Sales By Business Segment Bausch & Lomb's results are reported in two business segments. The healthcare segment includes personal health, medical and biomedical products. In the personal health sector, major lines include contact lens care products, eye care solutions, over-the-counter medications, skin care products and oral care products. Medical products include contact lenses and lens materials, prescription pharmaceuticals, hearing aids and dental implants. Biomedical products include purpose-bred laboratory animals for biomedical research and a variety of biotechnical and professional services provided to the scientific research community. Bausch & Lomb's optics segment includes sunglasses, binoculars, riflescopes, telescopes and optical thin film coating services and products. Consolidated revenues for the third quarter ended September 24, 1994 were $486 million, a decrease of $4 million or 1% from the 1993 third quarter. For the first nine months of 1994, net sales of $1,411 million declined $34 million or 2% from the comparable 1993 period. The following is a summary of net sales by business segment: Net Sales By Business Segment (Dollar Amounts In Thousands)
Third Quarter Nine Months 1994 1993 1994 1993 Healthcare $320,556 $325,249 $ 913,901 $ 854,806 Optics 165,503 164,887 497,171 522,364 -------- -------- ---------- ---------- Net Sales $486,059 $490,136 $1,411,072 $1,377,170 ======== ======== ========== ===========
In June 1994 the Company announced it was taking actions to reduce high levels of inventories at contact lens and sunglass distributors. During the third quarter further substantial progress was made in reducing the sunglass imbalance. The Company announced, and in October implemented, a new pricing and product return program for distributors of traditional contact lenses in the U.S. The new pricing policy enhances the Company's competitive position in a segment of the market where industry prices have been declining. The returns program will allow these distributors to return the excess portion of their consigned traditional lens inventories and eliminate the inventory imbalance in the U.S. This will aid sales performance in 1995. Actions were also taken to realign or discontinue relationships with certain sunglass distributors in Asia and the U.S., including those recently determined to be diverting product to markets outside their authorized territory. The Company believes that an additional sales penalty of more than $5 million was incurred in the period due to lost business with certain of these distributors. With regard to traditional contact lenses, the Company announced, and in October implemented, a product return program for consigned inventory held at distributors. These inventories related to an unsuccessful fourth quarter 1993 marketing program for which revenues had been deferred until sale of the product to a third party customer. Healthcare Segment Revenues Revenues in the healthcare segment decreased $5 million or 1% compared to the 1993 third quarter. On a year-to-date basis, healthcare segment revenues advanced $59 million or 7% over the comparable 1993 period. Major product sector revenues as a percentage of total healthcare segment sales follow: Healthcare Segment Net Sales By Product Sector
Third Quarter Nine Months 1994 1993 1994 1993 Personal Health 53% 53% 52% 52% Medical 33% 34% 34% 33% Biomedical 14% 13% 14% 15%
Within the personal health sector, third quarter revenues were even with 1993 levels. Continued strong worldwide demand for the Company's ReNu, Boston and Bausch & Lomb lens care solutions was experienced. Additionally, a good rate of growth was achieved in the eye care solutions business. Moderate sales growth was realized for over-the- counter medications in Europe as the rate of growth experienced in previous quarters was reduced by the impact of milder weather conditions on demand for hayfever products. Revenues for oral care products declined from 1993 due primarily to the effect of heightened competition for the Interplak and Clear Choice product lines, the reduction of selling prices to better position Interplak products in the U.S. market and lower shipments of soon-to-be discontinued models of Interplak power toothbrushes. Medical sector sales declined 5% from 1993, led by overall contact lens revenues, which were 15% below the 1993 third quarter. Traditional lens sales decreased significantly from the prior year reflecting actions taken to address excess inventories at U.S. distributors described previously, the continuing shift in demand toward planned replacement lens products worldwide and the effect of weakened economic conditions in Latin America. Sales of planned replacement lens products declined 15% as orders from U.S. distributor accounts have been impacted by an adjustment in the Company's sales and marketing policies and disappointing consumer response to the Occasions Multifocal lens product. In contrast, planned replacement lens revenues outside the U.S. improved more than 60% led by results in the Europe and Asia-Pacific regions. Ophthalmic pharmaceutical revenues improved 31% from 1993, led by results for recently approved products in the U.S., including Tobramycin and Levobunolol. Growth of 37% was achieved for the Company's prescription pharmaceutical operations in Europe. Medical sector sales also benefited from more than 15% gain in sales of dental implant products and from incremental sales of the Miracle-Ear line of hearing aids acquired in August 1993. A modest improvement for the Company's biomedical sector reflected the favorable effect of foreign currency rate fluctuations on the results of non-U.S. operations, increased worldwide shipments of specific pathogen-free eggs and incremental revenues from a first quarter acquisition. Optics Segment Revenues Revenues of $166 million in the optics segment were relatively even with the third quarter of 1993. The actions taken to address U.S. distributor inventory imbalances and a shift in sales mix toward lower priced sunglass models in the U.S. Ray-Ban business were the primary contributors to a 4% shortfall in worldwide sunglass revenues compared to 1993. Additionally, the Company believes that there has been a trend towards lower inventories at both the retail and wholesale levels in the wake of a tightening of the Company's worldwide marketing and sales policies. These trends were partially offset by incremental sales from the 1994 acquisition of the assets of Revo, noted for its line of premium-priced sunglasses, as well as improved performance in Japan. In addition, sports optics revenues increased 11% from 1993, led by increased demand for riflescopes and telescopes, while sales of thin film coating products and services advanced as a result of higher shipments to Europe. Net Sales By Geographic Region Sales in markets outside the U.S. totaled $216 million, an increase of $16 million or 8% from the 1993 third quarter. Favorable changes in currency exchange rates increased sales in U.S. dollars from 1993 by $6 million or 1%. In total, non-U.S. sales represented 44% of consolidated revenues, compared to 41% in the 1993 third quarter. European revenues in total increased by 5%, primarily reflecting the impact of currency movements. Sales improvement was achieved by the Company's over-the- counter medications, prescription pharmaceuticals and thin film coating products. These gains were partially offset by shortfalls in sunglass revenues. Sales in the Asia-Pacific region increased 14% due to gains in sales of contact lenses and sunglasses. In Canada and Latin America, revenue shortfalls for sunglasses and traditional contact lenses partially offset gains for lens care solutions and reflected weakened economic conditions in several key markets. U.S. sales totaled $270 million in the third quarter, a decrease of $20 million or 7% from the prior year period. Higher revenues for contact lens care and pharmaceutical products and contributions from recent acquisitions were more than offset by lower sales of contact lenses and sunglasses, as well as shortfalls in oral care products. Costs And Expenses The ratio of cost of products sold to sales was 51.0% for the 1994 third quarter versus 44.2% for the comparable 1993 period. For the nine-month period, this ratio was 47.9% for 1994 and 44.6% for 1993. The higher ratio was primarily attributable to sales mix and the impact of lower worldwide sunglass and contact lens volumes on manufacturing costs. Reduced pricing for traditional contact lenses and oral care products in the U.S. and the adverse currency impact on products sourced from Ireland were also factors. Selling, administrative and general expenses were 36.7% of sales in the third quarter versus 35.7% for the comparable 1993 period. Over the last three years these expenses have been managed to an average of approximately 36% of sales. Additional measures to reduce discretionary expenses in the wake of lower sales volumes for sunglass and contact lens products were implemented during the third quarter. However, the success of these efforts was more than offset by higher levels of spending to support recent acquisitions. For the nine-month period, selling, administrative and general expenses were 37.1% of sales in 1994 versus 36.8% in 1993. Corporate administration expense was 2.0% of sales in the 1994 third quarter versus 2.4% for 1993. reflecting the Company's continuing success in managing these expenses to a targeted level of no more than 3% of sales. Research and development expense for the first nine months of 1994 increased $2 million or 5.3% over 1993 levels, as the Company continued to invest in new technologies. The majority of the expenditures related to product development for new contact lens materials and the Company's next generation of oral care products and hearing aids. Restructuring Reserves In the fourth quarter of 1993 the Company announced plans to restructure its sunglass, pharmaceutical and biomedical operations and recorded a pre-tax restructuring charge of $50 million. Within the sunglass product line, a reserve of approximately $34 million was established to provide for costs to be incurred to shut down various manufacturing/assembly plants and distribution operations, eliminate certain business lines and realign global manufacturing operations. Actions included severance and project management costs of approximately $19 million and asset impairment charges of approximately $15 million. For pharmaceutical operations, a restructuring reserve of approximately $9 million was recorded for the costs to obtain FDA approval and complete the transfer of manufacturing to a new Tampa, Florida facility and to restructure worldwide operations. Actions included severance and project expenses of approximately $7 million and asset impairment charges of approximately $2 million. Biomedical restructuring actions included the consolidation of European and certain North American operations and administrative functions. A reserve of approximately $7 million was provided for expenses, including severance and project expenses of approximately $4 million and asset impairment charges of approximately $3 million. During the first nine months of 1994, charges have been recorded against the restructuring reserve for sunglasses, pharmaceuticals and biomedical products for approximately $17 million, $7 million and $3 million, respectively. At September 24, 1994, $17 million of the original reserve remained on the Company's balance sheet. All remaining actions are expected to be initiated or completed prior to year end. Through September, these restructuring actions are estimated to have contributed pre-tax savings of approximately $10 million, primarily in sunglass and biomedical operations. Business Segment And Operating Earnings Business segment earnings of $55 million for the third quarter of 1994 declined $41 million or 43% compared to the 1993 third quarter. Improved operating results were achieved for contact lens care, ophthalmic pharmaceutical and sports optics products. This earnings improvement was more than offset by the significant effect of reduced sales and manufacturing volumes in the sunglass and contact lens businesses worldwide. Results for the Miracle-Ear line of hearing aids reflected the increased costs of actions being taken to restore consumer confidence in the category following regulatory actions initiated by the FTC. These investments include advertising, franchise network support, and improved warranty and customer satisfaction policies. Operating earnings totaled $45 million, a decrease of $39 million or 47% from the prior year period. Other Income And Expenses Income from investments for the third quarter of 1994 totaled $9 million, compared to $2 million for the same period in 1993. The increase was due to income generated from an interest rate swap associated with distributions from Wilmington Partners L.P., as well as to interest earned at higher rates on increased average investment levels. Interest expense of $10 million for the 1994 third quarter was $3 million higher than the third quarter of 1993, as a result of an increase in average outstanding debt, based largely on recent acquisitions, and higher interest rates in 1994. The Company realized a net foreign currency gain totaling $1 million in the third quarter of 1994. This was $1 million below results in the same period in 1993. As had been anticipated, premium income on the Company's Irish pound hedge contracts decreased from the prior year. However, this factor has been partially offset by lower translation losses realized in Brazil in the third quarter, resulting from the recent stability of the currency in that country. Higher minority interest expense reflected distributions to the outside investor in Wilmington Partners L.P. formed in December 1993. The Company provided for income taxes at rates of 33.5% and 34.2% for the third quarters of 1994 and 1993, respectively. As a result of a reduction in statutory tax rates in Germany in 1994, income tax expense benefited from a one-time adjustment to deferred tax liabilities recorded in the second quarter. This adjustment reduced the reported tax rate for the first nine months of 1994 to 32.8% versus 34.7% in 1993. Liquidity And Financial Resources Cash Flows From Operating Activities Net earnings adjusted for non-cash items, including depreciation, amortization and deferred taxes, declined 10% from 1993. However, net cash flows provided by operating activities totaled a positive $157 million in the first nine months of 1994, an improvement of $62 million from the prior year period. This change was primarily the result of initiatives to reduce net receivables levels, which have decreased $42 million in the first nine months of 1994. Lower accrued liabilities primarily represented the net settlement of foreign currency hedge contracts and charges against the restructuring reserve recorded in December 1993. Cash Flows Used In Investing Activities Cash flows used in investing activities increased $217 million from the first nine months of 1993 to $537 million. During the third quarter the Company invested $425 million in securities of a wholly owned subsidiary of a triple-A rated financial institution, reported as Other Investments on the balance sheet. The investment establishes a relationship with a strong financial institution and its affiliates which will further enhance the Company's ability to raise capital and meet other financing needs. In addition it responds to recent changes in U.S. tax law relating to profits earned overseas. Purchases of property, plant and equipment totaled $63 million in 1994, a decrease of $5 million from 1993. Capital expenditures will be limited to approximately $90 million in 1994 compared to an average level of more than $100 million over the last five years. Major projects will include new manufacturing capacity for contact lenses in the U.S. and Europe and actions to further improve sunglass manufacturing efficiencies. Total cash used in investing activities in 1994 included the first quarter acquisition of the assets of Revo, a U.S.-based manufacturer of high performance sunglasses. Cash Flows From Financing Activities Approximately $5 million in cash was provided by financing activities. This reflects proceeds from additional U.S. short term borrowings. Cash flow was used to repurchase the Company's Common shares and for the payment of dividends. Free Cash Flow The Company has taken actions to improve cash flow and reduce its working capital requirements in 1994. The Company's goal is to maximize free cash flow which is defined as cash generated before dividends, the repayment of debt, stock repurchases and the acquisition of new businesses. Free cash flow for the nine months ended September 24, 1994 totaled $95 million. This calculation excludes the effect of the outflow of funds for the $425 million investment completed in the third quarter and described earlier. For the nine months ended September 25, 1993 free cash flow totaled a negative $2 million. The increase over the prior year is primarily attributable to changes in accounts receivable and accounts payable and accruals levels described previously. Financial Position The Company's total debt, consisting of short- and long-term borrowings, increased by $55 million to $621 million at the end of the 1994 third quarter. The net increase in borrowings was used to fund 1994 acquisitions and to pay dividends. Bausch & Lomb's ratio of total debt to equity stood at 62% in September 1994 and 60% in September 1993, the result of higher debt levels in 1994. Cash and investments totaled $194 million and $170 million at the end of September 1994 and 1993, respectively. Access to Financial Markets The Company maintains U.S. revolving credit and term loan agreements which total $250 million with 364-day credit terms. The interest rate under the agreements is at the prime rate, or, at the Company's option, at a mutually acceptable market rate. No debt was outstanding under these agreements at September 24, 1994, nor were there any borrowings outstanding under a shelf registration filed with the Securities and Exchange Commission in November 1993 for up to $300 million in debt. The Company maintains bank lines of credit for its financing requirements. In addition, for limited periods during the year, intercompany borrowings may be used to reduce U.S. short-term debt. The availability of adequate credit facilities provides the Company with a high degree of flexibility to meet its obligations, fund capital expenditures and invest in growth opportunities. Working Capital Working capital amounted to $301 million for the third quarter of 1994, versus $670 million at year-end 1993 and $320 million for the third quarter of 1993. The significant decrease from December 1993 pertains to the investment transaction completed in the third quarter. The current ratio was 1.4 at September 24, 1994, 1.9 at December 25, 1993 and 1.5 at September 25, 1993. OTHER FINANCIAL DATA Dividends declared on Common Stock were $0.245 per share in the third quarter of 1994 and $0.22 per share in the third quarter of 1993. Year- to-date dividends declared on Common Stock were $0.71 compared to $0.66 per share for the prior year period. This increase reflects the Company's desire to increase its dividend on an annual basis while maintaining a payout rate of between 30% and 35% of the previous year's earnings. Return on average shareholders' equity was 11% for the twelve-month period ended September 24, 1994 compared to 21% for the twelve-month period ended September 25, 1993. Excluding the cumulative translation adjustment, return on average shareholders' equity was 11% and 22% for the twelve-month periods ending September 24, 1994 and September 25, 1993, respectively. The change in the return ratio reflected the impact of the restructuring charges recorded in December 1993 and lower earnings performance in 1994. OUTLOOK The Company has estimated that, as a result of actions taken to date, excess inventory levels at distributors will have declined to approximately $10 million, primarily for sunglass products. These inventories are expected to be substantially eliminated by the end of 1994. Actions taken to implement the 1993 restructuring program are expected to generate pre-tax savings of approximately $16 million in 1994. Further earnings improvements are anticipated in subsequent years as the full benefit of these actions is realized. PART II - OTHER INFORMATION Item 1. Legal Proceedings. (1) In its Form 10-Q for the 1994 second quarter, the Company reported on seven class-action lawsuits against its subsidiary, Dahlberg, Inc., alleging false and misleading statements concerning hearing aid performance. The Company also reported that an Alabama court had conditionally certified a class of all Dahlberg hearing aid purchasers between January 1989 and January 1994, agreeing to reconsider the issue after 90 days. In September, 1994, Dahlberg moved to decertify the class, and that motion remains pending. (2) In its Form 10-Q for the 1994 second quarter, the Company reported on four class-action lawsuits challenging the Company's long-standing policy to protect consumers' health by selling contact lenses only to licensed professionals. Since that report, an additional five class-action complaints have been filed, in Alabama, Florida, Mississippi, Tennessee and Texas. (3) In its Form 10-Q for the 1994 second quarter, the Company reported on a class-action lawsuit filed in federal court in Alabama claiming that the Company misled consumers by packaging the same contact lens under three different names (Optima, Medalist and SeeQuence II) for three different prices. The Company had moved for transfer to the Western District of New York and for dismissal (i) on the merits and (ii) on the basis of federal pre-emption. These motions were denied on August 11, 1994, and the Company is vigorously defending itself on the merits. On September 12, 1994, the Company also received an inquiry on behalf of the Attorneys General of thirteen states regarding the Company's pricing and labeling practices regarding this product line. Item 6. Exhibits and Reports on Form 8-K. (a) Item 601 Exhibits Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. (b) Reports on Form 8-K A report on Form 8-K dated August 2, 1994 was filed during the third quarter to disclose the Company's $425 million investment in securities of a wholly owned subsidiary of a triple-A rated financial institution. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAUSCH & LOMB INCORPORATED Date: March 15, 1996 By: (Jay T. Holmes) Jay T. Holmes Executive Vice President and Chief Administrative Officer Date: March 15, 1996 By: (Stephen C. McCluski) Stephen C. McCluski Senior Vice President, Finance EXHIBIT INDEX S-K Item 601 No. Document (4)-a Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (4)-a to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 1-4105, and incorporated herein by reference). (4)-b Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-b to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (4)-c Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-c to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (4)-d Form of Indenture, dated as of September 1, 1991, between the Company and Citibank, N.A., as Trustee, with respect to the Company's Medium-Term Notes (filed as Exhibit (4)-a to the Company's Registration Statement on Form S-3, File No. 33-42858, and incorporated herein by reference). (4)-e Rights Agreement between the Company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 25, 1988, File No. 1-4105, and incorporated herein by reference). (4)-f Amendment to the Rights Agreement between the Company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 31, 1990, File No. 1-4105, and incorporated herein by reference). (11) Statement Regarding Computation of Per Share Earnings (filed herewith). (12) Statement Regarding Computation of Ratio of Earnings to Fixed Charges (filed herewith). (27) Financial Data Schedule (filed herewith). Exhibit 11 Statement Regarding Computation of Per Share Earnings Dollars And Shares In Thousands- Except Per Share Data
NINE MONTHS ENDED September 24, September 25, 1994* 1993* Net earnings $93,199 $131,901 ======= ======== Actual outstanding Common and Class B shares at beginning of year 59,118 59,444 Average Common shares issued for stock options and effects of assumed exercise of common stock equivalents and repurchase of Common and Class B shares 669 707 -------- ------- Average Common and Class B shares outstanding 59,787 60,151 ======= ======== Net earnings per Common and common share equivalent $1.56 $ 2.19 ======= ======== *Results have been restated as more fully described in Note A - "Restatement of Financial Information".
Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges Dollar Amounts In Thousands
September 24, December 25, 1994* 1993* Earnings before provision for income taxes and minority interest $164,877 $216,022 Fixed charges 30,579 35,664 Capitalized interest, net of current period amortization 195 260 -------- --------- Total earnings as adjusted $195,651 $251,946 ======== ========= Fixed charges: Interest (including interest expense and capitalized interest) $ 29,409 $ 34,202 Portion of rents representative of the interest factor 1,170 1,462 -------- --------- Total fixed charges $ 30,579 $ 35,664 ======== ========= Ratio of earnings to fixed charges 6.40 7.06 ======== ========= *Results have been restated as more fully described in Note A - "Restatement of Financial Information". Excluding the effect of restructuring charges recorded in the fourth quarter of 1993, the ratio of earnings to fixed charges at December 25, 1993 would have been 8.47.
[ARTICLE] 5 [PERIOD-TYPE] QTR-3 9-MOS [FISCAL-YEAR-END] DEC-31-1994 DEC-31-1994 [PERIOD-END] SEP-24-1994* SEP-24-1994* [CASH] 191,978 191,978 [SECURITIES] 1,782 1,782 [RECEIVABLES] 330,869 330,869 [ALLOWANCES] (17,678) (17,678) [INVENTORY] 320,329 320,329 [CURRENT-ASSETS] 1,025,961 1,025,961 [PP&E] 998,167 998,167 [DEPRECIATION] (452,695) (452,695) [TOTAL-ASSETS] 2,615,118 2,615,118 [CURRENT-LIABILITIES] 725,059 725,059 [BONDS] 330,549 330,549 [COMMON] 24,157 24,157 [PREFERRED-MANDATORY] 0 0 [PREFERRED] 0 0 [OTHER-SE] 982,066 982,066 [TOTAL-LIABILITY-AND-EQUITY] 2,615,118 2,615,118 [SALES] 486,059 1,411,072 [TOTAL-REVENUES] 486,059 1,411,072 [CGS] 248,019 675,920 [TOTAL-COSTS] 248,019 675,920 [OTHER-EXPENSES] 193,145 569,522 [LOSS-PROVISION] 236 5,248 [INTEREST-EXPENSE] 10,182 29,409 [INCOME-PRETAX] 44,350 164,877 [INCOME-TAX] 14,860 54,104 [INCOME-CONTINUING] 23,377 93,199 [DISCONTINUED] 0 0 [EXTRAORDINARY] 0 0 [CHANGES] 0 0 [NET-INCOME] 23,377 93,199 [EPS-PRIMARY] 0.39 1.56 [EPS-DILUTED] 0.39 1.56 *Results have been restated as more fully described in Note A - "Restatement of Financial Information" INCOME BEFORE TAXES AND MINORITY INTEREST
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