-----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, P0Bhg6LdZjFw9nM6Ao/mdEt6kuDxU+kxSZuIi2qUtHM3f3N+EkJmOG0fZ+uJvCsz LC2sC+QVwzSzi5QJ9SLyCQ== 0000010427-96-000031.txt : 19960411 0000010427-96-000031.hdr.sgml : 19960411 ACCESSION NUMBER: 0000010427-96-000031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAUSCH & LOMB INC CENTRAL INDEX KEY: 0000010427 STANDARD INDUSTRIAL CLASSIFICATION: 3851 IRS NUMBER: 160345235 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04105 FILM NUMBER: 96541046 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: (716) 338-6699 MAIL ADDRESS: STREET 1: ONE CHASE SQUARE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14601-0054 10-K 1 1995 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 _____________________ For the fiscal year ended Commission file number December 30, l995 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) NEW YORK 16-0345235 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE BAUSCH & LOMB PLACE, ROCHESTER, NEW YORK 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code:(716) 338-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $.40 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None [Cover page 1 of 2 pages] 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value (based on the consolidated tape closing price on February 27, 1996) of the voting stock held by non-affiliates of the registrant was $2,167,628,290. For the sole purpose of making this calculation, the term "non-affiliate" has been interpreted to exclude directors and corporate 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 corporate officers that such directors and corporate officers are "affiliates" of Bausch & Lomb Incorporated, as that term is defined under the Securities Act of 1933. The number of shares of common stock of the registrant, outstanding as of February 27, 1996 was 56,800,556, consisting of 56,031,154 shares of Common Stock and 769,402 shares of Class B Stock, which are identical with respect to dividend and liquidation rights, and vote together as a single class for all purposes. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II The Bausch & Lomb 1995 Annual Report to Shareholders for fiscal year ended December 30, 1995 ("Annual Report"). With the exception of the pages of the Annual Report specifically incorporated by reference herein, the Annual Report is not deemed to be filed as a part of this Report on Form 10-K. Part III Bausch & Lomb Incorporated Proxy Statement, dated April 11, 1996 ("Proxy Statement"). With the exception of the pages of the Proxy Statement specifically incorporated by reference herein, the Proxy Statement is not deemed to be filed as part of this Report on Form 10-K. [Cover page 2 of 2 pages] 1 TABLE OF CONTENTS PART I PAGE Item 1. Business ................................ 2 Item 2. Properties .............................. 5 Item 3. Legal Proceedings ....................... 6 Item 4. Submission of Matters to a Vote of Shareholders ......................... 7 PART II Item 5. Market for Bausch & Lomb Incorporated's Common Stock and Related Shareholder Matters ................................. 8 Item 6. Selected Financial Data ................. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 8 Item 8. Financial Statements and Supplementary Data ...................... 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 8 PART III Item 10. Directors and Executive Officers of Bausch & Lomb Incorporated............ 9 Item 11. Executive Compensation .................. 10 Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 10 Item 13. Certain Relationships and Related Transactions .................... 10 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K ...... 11 Signatures ......................................... 12 Schedules ......................................... S-1 Exhibit Index ..................................... E-1 Exhibits............ (Attached to this Report on Form 10-K) 2 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Bausch & Lomb Incorporated is a world leader in the development, manufacture and marketing of products and services for the healthcare and optics fields. Bausch & Lomb was incorporated in the State of New York in 1908 to carry on a business which was established in 1853. Its principal executive offices are located in Rochester, New York. Unless the context indicates otherwise, the terms "Bausch & Lomb" and "Company" as used herein refer to Bausch & Lomb Incorporated and its consolidated subsidiaries. Highlights of the general development of the business of Bausch & Lomb during 1995 are discussed below. The Company experienced a second difficult year in 1995; however, the management of the Company is committed to improving financial performance as outlined in its three-year strategic plan. Sales increased to $1,932.9 million, 2% above the 1994 amount of $1,892.7 million. Excluding revenues for a sports optics business that was divested in 1995, sales from continuing product lines reached $1,914.6 million, a gain of 7% over the 1994 amount of $1,781.7 million. Net earnings for 1995 amounted to $112.0 million or $1.94 per share compared to the amounts of $31.1 million or $.52 per share in 1994. Results for both periods were impacted by costs for restructuring and goodwill impairment charges as described below. The 1995 amounts also include a gain on the sale of the sports optics business. Net earnings were $108.6 million or $1.88 per share in 1995, excluding restructuring charges and the gain on the sports optics divestiture, compared to $106.1 million or $1.78 per share in 1994, excluding goodwill impairment charges. In May 1995, the Company sold its Sports Optics Division to Worldwide Sports & Recreation, Inc., an affiliate of Pexco Holdings. Total consideration included approximately $78 million in cash paid at closing, plus future payments and securities of Worldwide Sports & Recreation, Inc. The Sports Optics Division marketed a full line of binoculars, riflescopes, telescopes, spotting scopes and sporting glasses under well-known brand names including Bushnell, Jason and Bausch & Lomb. The Company recorded a non-recurring gain of $20.8 million after taxes, or $.36 per share, on the sale. In July 1995, the Company announced a commitment of more than $30 million to install the next generation of soft contact lens manufacturing technology. This capital investment for new equipment follows the successful completion of the first phase of a joint development program with IBM for systems design and prototype production. The new technology will significantly reduce the unit manufacturing cost of the Company's soft contact lens products and substantially increase its contact lens unit production capacity. The new technology will initially be used to make its new high-water frequent replacement product, SofLens66. In December 1995, the Company announced that Daniel E. Gill, chairman and chief executive officer, elected to retire from the Company. Mr. Gill served as chairman and chief executive officer for 13 years and had 17 years of service with the Company. Mr. Gill also retired from the Company's Board of Directors. Concurrent with this announcement, the Company named William M. Carpenter president and chief operating officer. Mr. Carpenter joined the Company in March 1995 as executive vice president and global business manager - eyewear. William H. Waltrip, an outside director of the Company, was named chairman and chief executive officer in January 1996. Mr. Waltrip is chairman of Technology Solutions Company and has been a director of the Company since 1985. In January 1996, the Company announced it had restated its 1993 and 1994 financial results. The action was taken as a result of an ongoing investigation which identified uncertainties surrounding the execution of a 1993 fourth quarter contact lens sales program and the improper recording of 1993 sunglass sales in Southeast Asia. Restatement of the contact lens distributor program reduced Bausch & Lomb's originally reported 1993 sales and net income by $22.3 million and $11.0 million, respectively, while reversal of the sunglass sales in the Southeast Asia region reduced previously reported 1993 sales by $19.8 million and net income by $6.6 million. In total, this restatement reduced 1993 earnings per share by $.29. The restatement increased the Company's reported 1994 sales and net income by corresponding amounts, but had no effect whatsoever on the Company's 1995 financial results. 3 In December 1995, the Board of Directors approved certain restructuring actions and the Company recorded certain charges affecting 1995 results. The Company recorded a $26.7 million restructuring provision, reducing net earnings by $.30 per share, to cover actions being taken to enhance future financial performance. More than half of the reserve, approximately $16 million, relates to severance and plant closure costs associated with a reconfiguration of manufacturing processes, plus some consolidation of administrative functions, in the Company's eyewear business. The remainder stems from a partial consolidation of various administration and production activities for the Company's Charles River Laboratories subsidiary; losses on disposition of assets related to elective strategy changes in the traditional contact lens business; costs related to the elimination of approximately 35 corporate staff positions; and the sale of a Company airplane. The Company also reduced 1995 earnings for litigation provisions of $14.2 million or $.24 per share after taxes and the recognition of retirement and other benefits for former chairman and chief executive officer, Daniel E. Gill, amounting to $4.4 million or $.08 per share after taxes. In January 1996, the Company entered into an agreement to acquire Arnet Optic Illusions, Inc., a designer, manufacturer and marketer of high-performance sunglasses and goggles, which competes in market segments with specialty products where the Company is not currently represented. In February 1996, the Company acquired Award plc, a Scotland-based company which manufactures and markets a high- water, daily disposable soft contact lens. The Company also acquired worldwide rights to patents held by BTG plc, a technology transfer company, for methods used in Award's manufacturing process. The patented cast-mold manufacturing technology and highly efficient distribution process used by Award are specifically designed to respond to the high volumes, short cycle times and low unit costs needed to make single-use contact lens wear practical and affordable for consumers. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Information concerning sales, business segment earnings and identifiable assets attributable to each of Bausch & Lomb's reportable industry segments is set forth on pages 28-33 and 50- 51 of the Annual Report which are incorporated herein by reference. (c) NARRATIVE DESCRIPTION OF BUSINESS Bausch & Lomb's operations have been classified into two industry segments: Healthcare and Optics. Below is a description of each segment and information to the extent that it is material to an understanding of the Company's business taken as a whole. In addition, pages 18-26 of the Annual Report are incorporated herein by reference. Healthcare The Healthcare segment includes personal health, medical and biomedical products. In the personal health sector, major lines include solutions used for the care of contact lenses and for the relief of eye irritation, contact lens accessories, certain over- the-counter pharmaceutical products, oral care products and Curel and Soft Sense skin care products. Medical products include contact lenses and lens materials, prescription drugs, hearing aids and dental implants. Biomedical products include purpose- bred laboratory animals for biomedical research, products derived from specific pathogen-free eggs and a variety of other biotechnical and professional services provided to the scientific research community. The Company markets its personal health products in the U.S. to practitioners through its own sales force and through drug stores, food stores and mass merchandisers. Personal health products are also marketed through an extensive international marketing organization. Distribution in many other countries is accomplished through distributors or dealers. Medical products are marketed through the Company's sales force and distributors to eye care and dental care practitioners, independent optical laboratories and hospitals. Hearing aids are distributed through the Miracle-Ear franchise system. Sales to pharmacies are handled by drug wholesalers, while marketing of medical products outside the U.S. is accomplished through the Company's extensive international marketing organization. In some countries, distribution is handled through dealers or distributors. Biomedical products are sold primarily through the Company's sales force worldwide. 4 Optics The principal products of the Company's Optics segment include sunglasses and optical thin film services and products. Optical products are distributed worldwide through distributors, wholesalers, manufacturer's representatives, and independent sales representatives. These products are also distributed through the Company's sales force to optical stores, department stores, catalog showrooms, mass merchandisers, sporting goods stores and, in the case of optical thin films, to a variety of industrial customers. Raw Materials and Parts; Customers Materials and components in both of the Company's industry segments are purchased from a wide variety of suppliers and the loss of any one supplier would not adversely affect the Company's business to a significant extent. No material part of the Company's business taken as a whole is dependent upon a single or a few customers in either of its industry segments. However, in the Optics segment, 15% of sales are attributable to Sunglass Hut. Patents, Trademarks & 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 patents or patent licenses relating to any particular product or process is material to either industry segment. The Company actively pursues technology development and acquisition as a means to enhance its competitive position in its business segments. In the healthcare segment, Bausch & Lomb has developed significant consumer, eye care professional and dental care professional recognition of products sold under the Bausch & Lomb, Sensitive Eyes, ReNu, Boston, SeeQuence, Medalist, The Boston Lens, Optima, SofLens, Charles River, VAF/Plus, Dr. Mann and Interplak trademarks. Bausch & Lomb, Ray-Ban, Revo and Wayfarer are trademarks receiving substantial consumer recognition in the optics segment. Seasonality and Working Capital Some seasonality exists for the Interplak line of power toothbrushes in the Healthcare segment and for sunglasses in the Optics segment. During some periods, the accumulation of inventories of such products in advance of expected shipments reflects the seasonal nature of the products. In general, the working capital practices followed in each of the Company's industry segments are typical of those businesses. Competition Each industry is highly competitive in both U.S. and non- U.S. markets. In both of its segments, Bausch & Lomb competes on the basis of product performance, quality, technology, price, service, warranty and reliability. In the Optics segment, the Company also competes on the basis of style. Research and Development Research and development constitutes an important part of Bausch & Lomb's activities. In 1995, the Company's research and development expenditures totaled $66 million, as compared to $60 million in 1994 and $58 million in 1993. Environment Although Bausch & Lomb is unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on its capital expenditures, earnings or competitive position. Capital expenditures for property, plant and equipment for environmental control facilities were not material during 1995 and are not anticipated to be material in 1996 or 1997. Number of Employees Bausch & Lomb employed approximately 14,000 persons as of December 30, 1995. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Information as to sales, operating earnings and identifiable assets attributable to each of Bausch & Lomb's geographic regions, and the amount of export sales in the aggregate, is set forth on page 50 of the Annual Report and is incorporated herein by reference. 5 ITEM 2. PROPERTIES The principal manufacturing, distribution and production facilities and other important physical properties of Bausch & Lomb at March 1, 1996 are listed hereafter and grouped under the principal industry segment to which they relate. Certain properties relate to more than one industry segment. Except where otherwise indicated by footnote, all properties shown are held in fee and are not subject to major encumbrances. HEALTHCARE Manufacturing Plants Distribution Centers Yorba Linda, CA (2) Yorba Linda, CA (2) Sarasota, FL (1) Preston, CT (2) Tampa, FL Tampa, FL Wilmington, MA (2) Wilmington, MA (2) Golden Valley, MN (1) Golden Valley, MN (1) Rochester, NY (1),(2) Reinholds, PA (2) (Optics Center) Greenville, SC (2) Greenville, SC Lynchburg, VA (2) North Ryde, Australia (2) Livingston, Scotland (2) Porto Alegre, Brazil Kitchener, Ontario, Canada (2) Beijing, China (2) Berlin, Germany Bhiwadi, India Waterford, Ireland (2) Milan, Italy Umsong-Gun (Seoul), Korea Livingston, Scotland (2) Barcelona, Spain Madrid, Spain Hastings, United Kingdom Production Facilities Hollister, CA (2) Brussels, Belgium Lebanon, CT St. Constant, Canada Preston, CT Margate, England Storrs, CT Regis Bognor, England (2) Voluntown, CT Lyons, France Summerland Key, FL (2) St. Aubin-les Elbeuf, France Colbert, GA (2) Extertal, Germany Roanoke, IL (2) Kisslegg, Germany Windham, ME Sulzfeld, Germany Southbridge, MA (2) Calco, Italy West Brookfield, MA (2) Atsugi, Japan Wilmington, MA Hino, Japan Portage, MI Tskuba, Japan (2) O'Fallon, MO Someren, Netherlands Raleigh, NC Barcelona, Spain (2) Hampton, NH (2) Uppsala, Sweden (2) Pittsfield, NH Newfield (Lakeview), NJ Stone Ridge (Kingston), NY Charleston, SC (2) Oregon, WI 6 OPTICS Manufacturing Plants Distribution Centers Sunnyvale, CA (2) Sunnyvale, CA (2) Oakland, MD San Clemente, CA (2) Rochester, NY (1),(2) Rochester, NY (1),(2) (Optics Center) (Optics Center) Rochester, NY San Antonio, TX (Frame Center) Richmond Hill, Ontario, San Antonio, TX Canada (2) North Ryde, Australia (2) Guangzhou, China (2) New Territories, Hong Kong (2) Bhiwadi, India (2) Waterford, Ireland (2) Nuevo Laredo, Mexico (2) CORPORATE FACILITIES Rochester, NY One Bausch & Lomb Place (2) Optics Center (1),(2) 1295 Scottsville Road (2) (1) This facility is financed under a tax-exempt financing agreement. (2) This facility is leased. Bausch & Lomb considers that its facilities are suitable and adequate for the operations involved. All facilities are being productively utilized. ITEM 3. LEGAL PROCEEDINGS 1. In June 1994, five separate shareholder actions against the Company and its former Chief Executive Officer and Chairman, Daniel E. Gill, were filed in the Western and Southern Districts of New York and an additional action, naming the Company, Mr. Gill and four other officers was filed in January 1995. In September 1995, the parties agreed to consolidate the actions and plaintiffs have filed several amended complaints. Plaintiffs seek to represent two classes, including all persons who purchased stock during a nine-month period prior to a June 3, 1994 announcement that the Company was undertaking efforts to re- balance distributor inventories and shareholders who purchased shares between June 4, 1994, and January 25, 1995, alleging that the Company artificially inflated the value of its stock by making false and misleading statements about expected financial results. The Company is vigorously defending itself against these claims. 2. On December 28, 1994, following an article in Business Week magazine questioning the Company's accounting treatment of a fourth quarter 1993 sales program initiated by the Contact Lens Division, the Company received a request from the Securities and Exchange Commission (SEC) for information in connection with an inquiry being conducted by the SEC. Since then, the Company has received additional requests for information from the SEC staff, including those with respect to the Company's global eyewear business. The Company has provided documents and Company personnel have testified. The Company is cooperating with the SEC's continuing investigation and is unable to predict the outcome of this proceeding. 3. In November 1994, the United States District Court for the Northern District of Alabama certified a nationwide class of purchasers of Optima FW and Medalist lenses during the period January 1, 1991 through November 1, 1994 to pursue claims relating to the Company's marketing and sale of the Optima FW, Medalist and SeeQuence2 contact lens systems. Plaintiffs allege that the Company misled consumers by packaging the same lens under three different names for three different prices. Plaintiffs seek compensatory and punitive damages in an unspecified amount. A trial is likely in the first half of 1996. Another action raising substantially similar claims and filed in California state court in October 1994 has been stayed pending the trial of this action. A working group of state attorneys general, representing the interests of 18 states, also requested documents regarding the Company's pricing, labeling and advertising of Optima FW, Medalist and SeeQuence2 lenses. The State of Florida has indicated that it will pursue an investigation independent of the working group and has served a subpoena seeking documents relating to the marketing and sale of contact lenses and contact lens solutions. The Company continues to vigorously defend the marketing of these lens systems. 7 4. In May and June 1995, the Company was served with several proposed class action complaints in New York, New Jersey, Pennsylvania and California, alleging that the Company misled consumers in its marketing and sale of Sensitive Eyes Rewetting Drops and Saline Solution and Bausch & Lomb Eyewash. Pending a motion to certify a class in the New York action, the other actions were stayed. The Company stipulated to certification of a nationwide class of purchasers of Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eyewash between May 1, 1989 and June 30, 1995 in the New York action. In exchange plaintiffs agreed to seek dismissal of their actions in other states. Another action, which was filed by a separate group of plaintiffs' attorneys in state court in California, was stayed by the court pending further review. The Company vigorously defends the marketing of these products. 5. In June 1994, the Florida Attorney General, acting on behalf of disposable contact lens consumers in the State of Florida, filed an antitrust action against the Company and others in the United States District Court for the Middle District of Florida. The complaint challenges the Company's long-standing policy of selling contact lenses only to licensed professionals. Plaintiffs allege that the policy was adopted in conspiracy with others to eliminate alternative channels of trade from the disposable lens market. The Florida Attorney General seeks treble damages on behalf of all purchasers of contact lenses, whether from the Company or others, a $1 million penalty and injunctive relief. A number of consumer class actions have been consolidated in the Middle District of Florida and actions are pending in California, Alabama and Tennessee state courts. The complaints make similar allegations and seek similar relief on behalf of consumers outside the State of Florida. The Company defends its policy as a lawfully adopted means of insuring effective distribution of its products and safeguarding consumers' health. 6. In 1995, the Company established additional provisions for, among other things, the costs and expenses associated with certain litigation against the Company. One of the matters related to litigation arising from the marketing and sale of Miracle-Ear hearing aids manufactured and sold by the Company's Dahlberg Inc. subsidiary between January 1989 and January 1994. In November 1995, settlements of class actions in Minnesota and Alabama and an action by the FTC were approved. The provision balance is deemed adequate to satisfy the settlements in these matters as well as the costs and expenses reasonably estimable with regard to the other pending matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS Inapplicable. 8 PART II ITEM 5. MARKET FOR BAUSCH & LOMB INCORPORATED'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The sections entitled "Dividends" and "Quarterly Stock Prices" and table entitled "Selected Financial Data" on pages 41, 42 and 66-67, respectively, of the Annual Report are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The table entitled "Selected Financial Data" on pages 66-67, 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 28-42 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, including the notes thereto, together with the sections entitled "Report of Independent Accountants" and "Quarterly Results" of the Annual Report included on pages 43-65 and 42, respectively, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF BAUSCH & LOMB INCORPORATED Information with respect to non-officer directors is included in the Proxy Statement on pages 3-6, and such information is incorporated herein by reference. Set forth below are the names, ages (as of March 1, 1996), positions and offices held by, and a brief account of the business experience during the past five years of, each executive officer. Name and Age Position William H. Waltrip (58) Chairman and Chief Executive Officer since January 1996; Chairman of Technology Solutions Company since 1993; Chief Executive Officer, Technology Solutions Company (1993-1995); Chairman and Chief Executive Officer of Biggers Brothers, Inc. (1991-1993); Consultant to private industry (1988- 1991). William M. Carpenter (43) President and Chief Operating Officer since December 1995; Executive Vice President, Global Business Manager, Eyewear since March 1995; President and Chief Executive Officer, Reckitt and Colman, Inc. (1994-1995); President and Chief Operating Officer, Reckitt and Colman, Inc. (1992-1994); President, Household Products Division, Reckitt and Colman, Inc. (1991-1992). Daniel E. Gill (59) (Retirement Date January 31, 1996) Chairman since 1982, Chief Executive Officer since 1981 and Director since l978. James C. Foster (45) Senior Vice President since December 1994 and President and Chief Executive Officer of Charles River Laboratories, Inc., a subsidiary of the Company, since 1991; Vice President (1991-1994); Executive Vice President, Charles River Laboratories, Inc. (1989-1991). Stephen A. Hellrung (48) Senior Vice President since March 1995; Secretary since December 1994; Vice President and General Counsel (1985-1994). Jay T. Holmes (53) (Retirement Date May 10, 1996) Executive Vice President since March 1995 and Chief Administrative Officer since December 1994; Senior Vice President (1983-March 1995); Corporate Affairs (1983-1994); Secretary (1981-1994); Director since 1986. James E. Kanaley (54) Senior Vice President since 1985 and President, Personal Products Division; Global Business Manager, Lens Care Products since December 1994; President, Personal Products Division (1987-1994). Alex Kumar (48) Senior Vice President, International Operations since December 1994; Vice President (1989-1994); President, Europe, Middle East and Africa Division (1989-1994). Stephen C. McCluski (43) Senior Vice President, Finance since February 1995; Vice President and Controller (1994); President, Outlook Eyewear Company (1992-February 1994); Vice President, Controller, Eyewear Division (1989-1992). 10 Robert J. Palmisano (51) (Resignation Date November 3, 1995) Senior Vice President since 1992 and President, Eyewear Division since 1988; Vice President (1984-1992). Thomas M. Riedhammer (47) Senior Vice President, Worldwide Pharmaceutical, Surgical, and Hearing Care Products since December 1994; Vice President (1993-1994); President, Worldwide Pharmaceuticals (1994); President, Pharmaceutical Division (1992- 1993); Vice President, Research and Development, Pharmaceutical Division (1991-1992); Vice President, Paco Pharmaceutical Services, Inc., and President, Paco Research Corporation (1986- 1991). Carl E. Sassano (46) Senior Vice President since 1992 and President, Contact Lens Division since September 1994; Global Business Manager, Contact Lens Products since December 1994; Vice President (1986-1992); President, Polymer Technology Corporation, a subsidiary of the Company (1983-1992). Deborah K. Smith (48) Senior Vice President, Human Resources since April 1995; Corporate Vice President, Global Human Resources Initiatives, Xerox Corporation (1994-1995); Vice President, Human Resources and Support Services, Development and Manufacturing Group and Corporate Strategic Services, Xerox Corporation (1988-1994). Franklin T. Jepson (48) Vice President, Communications and Investor Relations since 1986. Jurij Z. Kushner (45) Vice President and Controller since February 1995; Vice President, Operations, Personal Products Division (1994-1995); Vice President and Controller, Personal Products Division (1992-1994); Staff Vice President, Financial Planning and Analysis (1986-1992). James C. Foster is the son of Henry L. Foster, a Senior Vice President of the Company. 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 between any of the officers of the Company and any other persons pursuant to which such officer was selected as an officer. ITEM 11. EXECUTIVE COMPENSATION The portions of the "Executive Compensation" section entitled "Report of the Committee on Management", "Compensation Tables" and "Defined Benefit Retirement Plans", the second through fourth paragraphs of the section entitled "Board of Directors", and the second paragraph of the section entitled "Related Transactions and Employment Contracts" included in the Proxy Statement on pages 9-18, 1-2, 18, respectively, are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement on pages 7-8 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The first paragraph of the section entitled "Related Transactions and Employment Contracts" and the section entitled "Employment Contracts, Termination of Employment and Change of Control Arrangements" on pages 18-19 of the Proxy Statement are incorporated herein by reference. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents or the portions thereof indicated are filed as a part of this report. (a) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORTS OF INDEPENDENT ACCOUNTANTS. 1. Data incorporated by reference in Page in Item 8 from the Annual Report Annual Report Report of Independent Accountants 65 Balance Sheet at December 30, 1995 and December 31, 1994 44 For the years ended December 30, 1995, December 31, 1994 and December 25, 1993: Statement of Earnings 43 Statement of Cash Flows 45 Notes to Financial Statements 46-64 2. Filed herewith Report of Independent Accountants on Financial Statement Schedules Exhibit (24) For the years ended December 30, 1995, December 31, 1994 and December 25, 1993: SCHEDULE II- Valuation and Qualifying Page S-1 Accounts All other schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (b) REPORTS ON FORM 8-K Inapplicable. (c) ITEM 601 EXHIBITS Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. Each of Exhibits (10)-a through (10)-z is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BAUSCH & LOMB INCORPORATED Date: March 28, 1996 By:/s/William H. Waltrip Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer Date: March 28, 1996 By:/s/William H. Waltrip William H. Waltrip Chairman, Chief Executive Officer and Director Principal Financial Officer Date: March 28, 1996 By:/s/ Stephen C. McCluski Stephen C. McCluski Senior Vice President, Finance Controller Date: March 28, 1996 By:/s/ Jurij Z. Kushner Jurij Z. Kushner, Vice President and Controller Directors Franklin E. Agnew William Balderston III Bradford R. Boss Jay T. Holmes Ruth R. McMullin John R. Purcell Linda Johnson Rice Alvin W. Trivelpiece William H. Waltrip Kenneth L. Wolfe Date: March 28, 1996 By:/s/Jay T. Holmes Jay T. Holmes Attorney-in-Fact and Director S-1 Bausch & Lomb Incorporated SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts (Dollar amounts December 30, December 31, December 25, in thousands) 1995 1994* 1993* _____________________________________________________________ Balance at $ 16,830 $ 13,753 $ 11,834 beginning of year Activity for the year: Provision charged 8,253 8,007 4,220 to income (Reductions)/ (821) 1,769 1,224 additions resulting from (divestiture)/ acquisition activity Accounts written (10,194) (7,696) (4,418) off Recoveries on 634 997 893 accounts previ- ously written off Reclassifi- (3,470) -- -- cations Balance at end $ 11,232 $ 16,830 $ 13,753 of year *Results have been restated as more fully described in Note 2 - "Restatement of Financial Information". Represents reserves related to trade receivables which have been reclassified to Notes Receivable.
E-1 EXHIBIT INDEX S-K Item 601 No. Document (3)-a Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (3)-a to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 1-4105, and incorporated herein by reference). (3)-b Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (3)-b to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (3)-c Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (3)-c to the Company's Annual report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (3)-d By-Laws of Bausch & Lomb Incorporated, as amended, effective October 28, 1986 (filed as Exhibit (3)-b to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1986, File No. 1-4105, and incorporated herein by reference). (4)-a 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). (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 The Bausch & Lomb Incorporated Executive Incentive Compensation Plan (filed as Exhibit (10)-b to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File No. 1-4105, and incorporated herein by reference). (10)-c Amendment to the Bausch & Lomb Incorporated Executive Incentive Compensation Plan (filed herewith). (10)-d The Bausch & Lomb Supplemental Retirement Income Plan I, as restated (filed as Exhibit (10)-e 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). E-2 (10)-e The Bausch & Lomb Supplemental Retirement Income Plan II, as restated (filed as Exhibit (10)-f to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-f The Bausch & Lomb Supplemental Retirement Income Plan III (filed as Exhibit (10)-g to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (10)-g The Bausch & Lomb Incorporated Long Term Incentive Program, as restated (filed as Exhibit (10)-g 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). (10)-h Amendment to the Bausch & Lomb Incorporated Long Term Incentive Program (filed as Exhibit (10)-i to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (10)-i The Bausch & Lomb Incorporated Management Executive Incentive Plan (filed as Exhibit (10)-h to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-4105, and incorporated herein by reference). (10)-j Amendment to the Bausch & Lomb Incorporated Management Executive Incentive Plan (filed herewith). (10)-k The Bausch & Lomb Supplemental Management Executive Incentive Plan (filed as Exhibit (10)-i to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-4105, and incorporated herein by reference). (10)-l Amendment to the Bausch & Lomb Supplemental Management Executive Incentive Plan (filed herewith). (10)-m The Bausch & Lomb Incorporated Long Term Performance Stock Plan I (filed as Exhibit (10)-j to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-4105, and incorporated herein by reference). (10)-n Bausch & Lomb Incorporated Long Term Performance Stock Plan II, as amended (filed as Exhibit (10)-i to the Company's Annual Report on Form 10-K for fiscal year ended December 25, 1993, File No. 1-4105 and incorporated herein by reference). (10)-o The 1982 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit III-F to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1982, File No. 1-4105, and incorporated herein by reference). (10)-p Amendment to the 1982 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-l to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (10)-q Amendment to the 1982 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-k to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-r The 1987 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit I.B to the Company's Registration Statement on Form S-8, File No. 33-15439, and incorporated herein by reference). (10)-s Amendment to the 1987 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-n to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). E-3 (10)-t Amendment to the 1987 Stock Incentive Plan of Bausch & Lomb Incorporated (filed as Exhibit (10)-n to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-u The 1990 Stock Incentive Plan of Bausch & Lomb Incorporated, as amended (filed as Exhibit (10)-o 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)-v The Bausch & Lomb Incorporated Director Deferred Compensation Plan, as restated (filed as Exhibit (10)-p 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)-w The Bausch & Lomb Incorporated Executive Deferred Compensation Plan, as restated (filed as Exhibit (10)-q 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)-x The Bausch & Lomb Incorporated Executive Benefit Plan, as amended (filed as Exhibit (10)-t to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990, File No. 1-4105, and incorporated herein by reference). (10)-y The Bausch & Lomb Incorporated Executive Security Program (filed as Exhibit (10)-s to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1989, File No. 1-4105, and incorporated herein by reference). (10)-z The Bausch & Lomb 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). (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 1994 Annual Report to Shareholders for the fiscal year ended December 31, 1994 (filed herewith). With the exception of the pages of the Annual Report specifically incorporated by reference herein, the Annual Report is not deemed to be filed as a part of this Report on Form 10-K. (22) Subsidiaries (filed herewith). (24) Report of Independent Accountants on Financial Statement Schedules and Consent of Independent Accountants (filed herewith). (25) Power of attorney with respect to the signatures of directors in this Report on Form 10-K (filed herewith). (27) Financial Data Schedule (filed herewith). EX-10 2 EXHIBIT (10)-C EXHIBIT (10)-c THE EXECUTIVE INCENTIVE COMPENSATION PLAN As amended and restated 2/27/96 1.0 INTRODUCTION The Executive Incentive Compensation Plan is established to provide incentive compensation in the form of a supplement to the base salaries of those officers, managers, and key employees who contribute significantly to the growth and success of the Company's business; to attract and to retain, in the employ of the Company, individuals of outstanding ability; and to align the interests of those who hold positions of major responsibility in the Company with the interests of the Company's shareholders. 2.0 ELIGIBILITY Those members of the executive management group whose duties and responsibilities contribute significantly to the growth and success of the Company's business are eligible. This generally includes all positions in the mid- management/technical band and above, in Rochester based divisions or functions. The plan may be adopted by non- Rochester based divisions. The participant must be on the payroll in an eligible position before July 1 of the plan year, to be eligible for an award. 3.0 DEFINITIONS 3.1 A standard incentive award has been established for each salary grade or job band and is expressed as a percentage of period salary (i.e., eligible base salary earnings for the year). Exhibit I defines standard percentage schedules. The standard incentive award is the award payout level which over time, participants, units and the corporation should average, and will be the amount which will be used for financial accrual purposes during the incentive year. 3.2 An approved incentive award is the incentive which has been approved by the Chairman of the Board of directors and the Committee On Management of the Board to be paid by the Company to the participant. Actual incentive award amounts, based upon individual and organizational performance, can vary from 0% for unacceptable performance to a maximum of 175% of standard. In any event, an award cannot exceed the maximum. 4.0 MEASURES OF PERFORMANCE Each organizational unit and eligible participant will set performance measures. These will be applied for incentive plan purposes as follows:
Global Corporation Business Unit(s) Individual Global Business 20% 40% 40% Managers Staff Officers 75% 25% Corporate Staff Participants 50% 50% Division or Group Presidents 25% or 25% 75% Division or Global Business Participants 50% or 50% 50%
4.1 The "Organizational Performance Management System" (OPMS) has been established to evaluate corporate, division, global business and profit center performance for Executive Incentive Compensation Plan purposes. The OPMS is based upon five organizational objectives. These objectives are to be agreed upon at the beginning of the plan year. They must include the following categories and weightings: Sales 25% Operating Earnings 25% Asset Management 20% Long Term Vitality 15% How Goals are Achieved 15% For the three financial goals performance levels for 5, 4, 3, 2 and 1 ratings are to be defined at the beginning of the plan year for each goal. The fourth and fifth goal will be assessed at year end by the COO and the CEO. After calculation of year end OPMS results, the CEO may make a modification of +20 (if performance is not accurately reflected in performance measures i.e., due to general economic, industry change, corporate strategy change). Adjustments must be made in 5% increments. 4.2 The "Individual Performance Management System" (IPMS) for use with the Executive Incentive Plan will consist of five or fewer specific individual objectives. These objectives are to be agreed upon at the beginning of the Plan year. They must be measurable and generally within the participant's control. Further, there will be a pre-determined weighting among the objectives reflecting the priority of these objectives. Individual performance will be determined by the participants' supervisor and approved by the Division/Group Presidents or appropriate corporate staff function head. The unit or functional officer may make an adjustment of +20% to the calculated ratings if performance is not accurately reflected in performance measures. Adjustments must be made in 5% increments. 5.0 DEFINITION OF PERFORMANCE The following "definitions of performance" are to be utilized for the plan:
PERFORMANCE DESIGNATION DEFINITION 5 (maximum) Extraordinary performance where the objective was exceeded by a wide margin. 4 (high standard) Excellent performance where the objective was exceeded. 3 (standard) Successful performance where the objective was well met. 2 (low standard) Performance fell short of goal. 1 (minimum) Performance was well below expectations.
6.0 PROCEDURE FOR BONUS CALCULATION AND APPROVAL Each participant's total bonus will be calculated as follows: 1) The standard bonus (see Section 3.1) is divided into appropriate corporation/unit-individual components (as defined in Section 4.0). 2) For the organizational components; A. The final rating is converted to a percentage factor (see Attachment I conversion table). B. The factor is multiplied by the standard organizational bonus. C. There is no organizational award granted if final overall rating is below 1.0. 3) For the individual component; A. The final rating is converted to a percentage factor (see Attachment III conversion table). B. The factor is multiplied by the standard individual bonus. C. There is no individual award granted if final overall rating is below 1.0. 4) To calculate the total bonus, the components are added. The Division Presidents will submit their recommendations for individual incentive awards to their immediate superiors. In all instances the recommendations for the Corporate awards will be submitted to the Chief Executive Officer for concurrence. Corporate function heads will submit their recommendations for individual awards to their immediate superior who will then submit the recommendations to the Chief Executive Officer for concurrence. 7.0 REMOVAL, TRANSFERS AND TERMINATIONS 7.1 Participants whose employment with the Company is terminated because of retirement, death, or disability: - After the close of the plan year, but prior to the actual distribution of awards for such year, may be awarded a full incentive award for the plan year. In the case of death, such payment will be made to a beneficiary. - After the beginning, but prior to the end of the plan year, may receive an incentive award for that year based on a prorated calculation reflecting their employment with the Company and participation in the Plan during the year. Awards will not be paid for any period less than six months participation in the plan year. 7.2 Participants who are terminated in the fourth quarter of the year due to a re-structuring which results in job elimination, may receive an incentive award for that year based on a prorated calculation reflecting their employment with the Company and participation in the Plan during that year. 7.3 Participants transferred during the plan year within the Company will be awarded an incentive payment through the division in which the participant is employed at the end of the plan year. It will be based on the contribution made in each division in which the participant was employed during the year. To this end a written evaluation and rating must be completed by the participant's superior upon transfer. The awarding division will be charged for the full amount of the bonus. 7.4 Notwithstanding the foregoing, a special prorated incentive award shall be paid to participants if, during the period between the date of a change in control and the next award date determined pursuant to Section 10: 1) the participant's employment is terminated involuntarily other than for good cause, or 2) the Plan is terminated. The amount of the award shall be calculated as a percentage of period earnings based upon standard performance and prorated through the date of termination of the participant or the Plan, 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 employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of paragraph C of this Section 7.0 are satisfied; or B. Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Board" and, as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or C. Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company 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 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 (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or D. Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (a) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the same Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 7.5 Participants who leave the company or are terminated prior to the actual payment of award for reasons other than retirement, death, disability, termination in the fourth quarter due to a restructuring which results in job elimination, change in control, will forfeit the award for that plan year. 8.0 INCENTIVE AWARDS THROUGH CONTRACTUAL AGREEMENTS Incentive awards may be made to participants who do not meet the six month eligibility requirements only if the following conditions are met. (1) Award must be made through contractual agreement made upon hiring, re-assignment, or commencement of special project or assignment. These arrangements must be approved in writing by Division President, Corporate Compensation, Corporate V.P. Human Resources, and normal 1 over 1 approval matrix. 9.0 ADMINISTRATION OF THE PLAN The Committee On Management of the Board of Directors reserves the right to interpret, amend, modify or terminate the existing program in accordance with changing conditions. Further, no participant eligible to receive any payments shall have any rights to pledge, assign, or otherwise dispose of unpaid portion of such payments. The Committee On Management is responsible for overall administration of the Plan. It will determine who will receive incentives and the amount of each incentive. It may also review the standards and objectives for a particular year. The Committee On Management may change or terminate the Plan at any time and no person has any rights with respect to an incentive award until it has been paid. 10.0 INCENTIVE AWARD DISTRIBUTION Incentive awards, when payable, shall be paid in the latter part of the month of February following the close of the preceding fiscal year. Participants may also elect to defer all or part of an incentive award in accordance with the procedure set forth in the Company's Deferred Compensation Plan. BAUSCH & LOMB INCORPORATED BY: /s/ Deborah K. Smith DEBORAH K. SMITH SENIOR VICE PRESIDENT HUMAN RESOURCES AGREED to this 1st day of March, 1996. EX-10 3 EXHIBIT (10)-J EXHIBIT (10)-j THE BAUSCH & LOMB INCORPORATED MANAGEMENT EXECUTIVE INCENTIVE PLAN As amended and restated 2/27/96 1.0 INTRODUCTION The Management Executive Incentive Plan is established to provide incentive compensation in the form of a supplement to the base salaries of the top Corporate officers; to attract and to retain, in the employ of the Company, individuals of outstanding ability; and to align the interests of those who hold positions of major responsibility in the Company with the interests of the Company's shareholders. 2.0 ELIGIBILITY The Chairman and Chief Executive Officer, President and Chief Operating Officer, Executive Vice and Chief Administrative Officer, and Senior Vice President Finance are eligible to participate in The Management Executive Incentive Plan. The participant must be on the payroll in an eligible position before July 1 of the plan year, to be eligible for an award. Participants in this Plan are not eligible to participate in the Executive Incentive Compensation Plan. 3.0 DEFINITIONS 3.1 A standard incentive award has been established for each salary grade or job band for participants in this Plan and is expressed as a percentage of period salary (i.e., eligible base salary earnings for the year). The standard percentages are: Chairman and Chief Executive 65 Officer President and Chief Operating 55 Officer Executive Vice President 50 and Chief Administrative Officer Senior Vice President Finance 50 3.2 An approved incentive award is the incentive award which has been approved by the Committee On Management of the Board of Directors (the "Committee on Management") to be paid by the Company to the participant. Actual incentive award amounts, based upon organizational performance, can vary from 0% for unacceptable performance to a range from a minimum of 50% to a maximum of 175% of standard for acceptable performance. In any event, an award cannot exceed the maximum. 4.0 MEASURES OF PERFORMANCE The Committee on Management will set performance measures to be applied for incentive plan purposes. These performance measures will determine 100% of the bonus calculation for participants in this Plan. 4.1 The "Organizational Performance Management System" (OPMS) has been established to evaluate performance for the Management Executive Incentive Plan. The OPMS is based upon specific organizational objectives, which are established during the first quarter of the year by the Committee on Management. These objectives include the following:
Performance Measures Weightings Sales growth 30% EPS growth 30% ROE 30% Aggregate weighted 10% long term vitality ratings from each of the operating divisions
Performance levels for 5, 4, 3, 2, and 1 ratings are defined by the Committee on Management prior to end of the first quarter. 5.0 DEFINITION OF PERFORMANCE The following "definitions of performance" are to be utilized for the Plan:
PERFORMANCE DESIGNATION DEFINITION 5 (maximum) Extraordinary performance where the objective was exceeded by a wide margin. 4 (high standard) Excellent performance where the objective was exceeded. 3 (standard) Successful performance where the objective was well met. 2 (low standard) Performance fell short of goal. 1 (minimum) Performance was well below expectations.
6.0 PROCEDURE FOR BONUS CALCULATION AND APPROVAL Each participant's total bonus will be calculated as follows: 1) The standard award is calculated by multiplying the participant's period salary by the standard percentage set forth in Section 3.1. 2) The final organizational rating is determined by weighting the performance ratings determined under Section 5 in accordance with the percentages in Section 4.1; adding the four weighted ratings; and converting the total performance ratings to a percentage factor pursuant to Attachment I, conversion table. 3) The percentage factor is then multiplied times the standard bonus. 4) There is no award granted if final organizational rating is below 2.0. 7.0 REMOVAL, TRANSFERS AND TERMINATIONS Participants whose employment with the Company is terminated because of retirement, death, or disability: - After the close of the plan year, but prior to the actual distribution of awards for such year, may be awarded a full incentive award earned for the plan year. In the case of death, such payment will be made to a beneficiary. - After the beginning, but prior to the end of the plan year, may receive an incentive award for that year based on a prorated calculation reflecting their employment with the Company within the year and the award earned. Awards will not be paid for any period less than six months participation in the plan year. Participants who leave the company for reasons other than retirement, death, disability, change in control, or are terminated prior to the actual payment of award will forfeit the award for that plan year. Notwithstanding the foregoing, a special prorated incentive award shall be paid to participants if, during the period between the date of a change in control and the next award date determined pursuant to Section 10: 1) the participant's employment is terminated involuntarily other than for good cause, or 2) the Plan is terminated. The amount of the award shall be calculated as a percentage of period earnings based upon standard performance and prorated through the date of termination of the participant or the Plan, 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 employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of paragraph C of this Section 7.0 are satisfied; or B. Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Board" and, as of the date hereof, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or C. Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company 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 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 (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or D. Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (a) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the same Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 8.0 ADMINISTRATION OF THE PLAN The Committee On Management reserves the right to interpret, amend, modify or terminate the existing program in accordance with changing conditions, but only to the extent authorized or permitted by law. The Committee On Management is responsible for overall administration of the Plan. It will determine who will receive incentives and the amount of each incentive. It may also review the standards and objectives for a particular year. The Committee On Management may change or terminate the Plan at any time and no person has any rights with respect to an incentive award until it has been paid. Notwithstanding the foregoing, the Committee on Management shall not exercise any discretionary authority granted to it pursuant to this Section in a way which would cause the Company to lose the benefit of the performance based exemption from the $1 million cap on individual compensation deductions for publicly traded corporations set forth in IRC Section 162(m). No participant eligible to receive any payments shall have any rights to pledge, assign, or otherwise dispose of unpaid portion of such payments. 9.0 INCENTIVE AWARD DISTRIBUTION Incentive awards, when payable, shall be paid in the latter part of the month of February following the close of the preceding fiscal year. Participants may also elect to defer all or part of an incentive award in accordance with the procedure set forth in the Company's Deferred Compensation Plan. BAUSCH & LOMB INCORPORATED BY: /s/ Deborah K. Smith DEBORAH K. SMITH SENIOR VICE PRESIDENT HUMAN RESOURCES AGREED to this 1st day of March, 1996. EX-10 4 EXHIBIT (10)-L EXHIBIT (10)-l THE BAUSCH & LOMB INCORPORATED SUPPLEMENTAL MANAGEMENT EXECUTIVE INCENTIVE PLAN As amended and restated 12/12/95 1.0 INTRODUCTION The Supplemental Management Executive Incentive Plan is designed to advance the interests of Bausch & Lomb and its shareholders by (i) providing incentives for those key executives who have overall responsibility for the performance of the company; (ii) reinforcing corporate financial goals; (iii) providing competitive levels of compensation for key executives; and (iv) aligning management and shareholder interests. The Plan is established to allow the Committee on Management of the Board of Directors (the "Committee"), in its discretion, to make an incentive award in addition to that calculated in The Management Executive Incentive Plan (MEIP) if the executive's or company's performance exceeds the performance measured by MEIP. 2.0 ELIGIBILITY Senior officers with overall responsibility for the long term performance of the Company are eligible to participate in The Supplemental Management Executive Incentive Plan. The Committee will designate the executives to participate in the Plan. The participant must be on the payroll in an eligible position before July 1 of the plan year, to be eligible for an award. 3.0 SUPPLEMENTAL AWARDS The Committee will make an award under this Plan if it determines that such an award is in the interests of Bausch & Lomb and its shareholders given the criteria set forth in Section 1.0 above. Awards under this Plan may be made in cash or Bausch & Lomb Class B Stock granted pursuant to the 1990 Stock Incentive Plan or any successor plan. 4.0 ADMINISTRATION OF THE PLAN The Committee reserves the right to interpret, amend, modify or terminate the existing program in accordance with changing conditions. Further, no participant eligible to receive any payments shall have any rights to pledge, assign, or otherwise dispose of unpaid portion of such payments. The Committee is responsible for overall administration of the Plan. It will determine who will receive incentives and the amount of each incentive. The Committee may change or terminate the Plan at any time and no person has any rights with respect to an incentive award until it has been paid. 5.0 INCENTIVE AWARD DISTRIBUTION Incentive awards, when payable, shall be paid in the latter part of the month of February following the close of the preceding fiscal year. Participants may also elect to defer all or part of an incentive award in accordance with the procedure set forth in the Company's Deferred Compensation Plan. Any payments made under this Plan which would result in incentive compensation to a participant which would not be deductible pursuant to IRC Section 162(m) ($1MM cap on individual compensation deductions for publicly traded corporations) shall, to the extent of such non-deductible compensation, automatically be paid into the Deferred Compensation Plan on behalf of the participant. Such deferred payment would be invested at the direction of the plan participant, and would be paid out subsequent to retirement. BAUSCH & LOMB INCORPORATED BY: /s/Deborah K. Smith DEBORAH K. SMITH SENIOR VICE PRESIDENT HUMAN RESOURCES AGREED to this 15th day of January, 1996. EX-11 5 EXHIBIT 11 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the Years Ended Dollars & Shares in Thousands - Except Per December 30, December 31, Share Data 1995 1994* Net earnings $112,022 $31,123 Actual outstanding Common and Class B shares at beginning of year 58,992 59,118 Average Common shares issued for stock options and effects of assumed exercise of Common stock equivalents and repurchase of Common and Class B shares (1,140) 621 Average Common and Class B shares outstanding 57,852 59,739 Net earnings per Common and Common share equivalent $ 1.94 $ 0.52 *Amounts have been restated for certain items as more fully described in Note 2 - Restatement of Financial Information
EX-12 6 EXHIBIT 12 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Dollar Amounts December 30, December 31, in Thousands 1995 1994* Earnings before provision $211,847 $116,342 for income taxes and minority interest Fixed charges 47,584 42,954 Less: Capitalized (260) (260) interest, net of current period amortization Total earnings as adjusted $259,691 $159,556 Fixed charges: Interest (including $ 45,765 $ 41,379 interest expenses and capitalized interest) Portion of rents 1,819 1,575 representative of the interest factor Total fixed charges $ 47,584 $ 42,954 Ratio of earnings to 5.46 3.71 fixed charges *Amounts have been restated as more fully described in Note 2 - Restatement of Financial Information. Excluding the effects of the gain on sales of the Sports Optics Division and restructuring charges described in the Notes To Financial Statements, the ratio of earnings to fixed charges at December 30, 1995 would have been 5.26. Excluding the effect of the goodwill impairment charge described in the Notes To Financial Statements, the ratio of earnings to fixed charges at December 31, 1994 would have been 5.46.
EX-13 7 EXHIBIT 13 TO 1995 10-K Financial Highlights FOR THE YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995 (Dollar Amounts In Thousands -- Except Per Share Data) 1
Percentage Change 1993* 1994* 1995 From 1994 - - ---------------------------------------------------------------------------------------------- BUSINESS RESULTS (INCLUDING RESTRUCTURING, GAIN ON SALE OF SPORTS OPTICS DIVISION AND GOODWILL IMPAIRMENT CHARGES) Net sales $1,830,050 $1,892,686 $1,932,883 2% Business segment earnings 271,847 163,616 271,555 66% Net earnings 138,902 31,123 112,022 Per common share: Net earnings 2.31 0.52 1.94 Dividends declared 0.88 0.955 1.01 6% Shareholder's equity at year end 15.38 15.50 16.32 5% Return on average shareholder's equity 15.5% 3.2% 11.9% --------- BUSINESS RESULTS (EXCLUDING RESTRUCTURING, GAIN ON SALE OF SPORTS OPTICS DIVISION AND GOODWILL IMPAIRMENT CHARGES) Net sales $1,830,050 $1,892,686 $1,932,883 2% Net sales from continuing product lines 1,730,685 1,781,669 1,914,625 7% Business segment earnings 320,647 238,616 295,252 24% Business segment earnings from continuing product lines 312,682 228,260 296,552 30% Net earnings 175,365 106,123 108,552 2% Per common share: Net earnings 2.92 1.78 1.88 6% Return on average shareholder's equity 19.5% 11.0% 11.5% --------- OTHER FINANCIAL DATA Capital expenditures $ 107,232 $ 84,807 $ 95,481 Working capital 669,627 277,428 70,870 Common shareholders of record at year end 8,100 9,100 8,100 Average common shares outstanding (000s) 60,115 59,739 57,852 High/low stock price $57-1/2 - $43 $53-7/8 - $30-5/8 $44-1/2 - $30-7/8 ---------
*Amounts presented in this table and in tables and discussions included in pages 2-26 have been restated for certain items as more fully described in Note 2 -- Restatement Of Financial Information. Contents 1 Financial Highlights 2 Letter to Shareholders 6 Our Values 18 The Healthcare Segment 25 The Optics Segment 27 Financial Review 43 Financial Statements 46 Notes to Financial Statements 65 Report of Independent Accountants 65 Report of Governance 66 Selected Financial Data 68 Divisions and Subsidiaries 70 Directors and Officers 71 Corporate Information 1995 Annual Report 1 To Our Shareholders Fellow shareholders 1995 was our second tough year in a row. We remained challenged on several fronts -- particularly in our contact lens business, where the emerging move to frequent lens replacement underscored the Company's efforts to substantially reduce manufacturing costs while increasing production on a global scale. Bausch & Lomb's stock price rose during the year, but was still reflective of a sluggish earnings recovery that lagged behind our plan. Total sales amounted to $1,933 million in 1995, an increase of 2% from 1994 and net earnings were $112 million. Consolidated revenues from continuing product lines rose 7% over 1994 to $1,915 million, while net earnings reached $109 million or $1.88 per share excluding non-recurring items. That compared to 1994 net earnings of $106 million or $1.78 per share. We had expected to do better on the earnings front, and are moving swiftly to enhance Bausch & Lomb's underlying profitability. Bausch & Lomb historically has ranked among America's most admired corporations, but continued negative publicity related to past accounting and operational issues has tarnished our reputation. We genuinely believe that those problems would not occur in today's Bausch & Lomb, given the many changes we've made to our marketing practices and managerial approach to our businesses. We have also refocused the objectives linked to our executive compensation system to strike an appropriate balance between the achievement of annual operating plans and the creation of long-term growth in the value of our Company. Additionally, in January 1996, we restated Bausch & Lomb's financial results for 1993 with a corresponding restatement for 1994, and thus resolved continuing uncertainties related to past matters which have taken management's focus away from the tasks necessary to move our Company forward. We Are Moving On Bausch & Lomb has very attractive business opportunities and the resources, especially strong cash flow, to fund their pursuit. Fulfilling this potential requires that we do five things. Sharpen the focus of our product portfolio and investment decisions. One place companies sometimes fall short is in their reluctance to fully realize asset values through divestiture or other forms of corporate restructuring. To us, growth isn't good if it fails to pay off for the shareholder, and bigger is only better if it provides a competitive advantage. Like other companies, Bausch & Lomb consists of a mix of businesses -- some preeminent, strong global franchises, others where franchise value has weakened or where capital requirements are large relative to the return we can confidently foresee. Some of our businesses may be worth more to others than to the Bausch & Lomb shareholder, and certain of them may have value that can be realized through various restructuring moves. Acting on these views, we divested the sports optics business in 1995, realizing a significant gain over book value. In December, the board of directors authorized management to evaluate the sale of our Interplak line of power toothbrushes due to its weak financial performance. Similar efforts in the future should sharpen our focus on core businesses and stimulate a greater return to shareholders. Rekindle work force pride and enthusiasm. Although two tough years have tested the morale of Bausch & Lomb men and women, our employees continue to rise to challenges in an admirable and effective manner. Now, we need to give them a reason to feel pride in this company again, and further incentives to place their energies and trust in us. In the years ahead, we will be asking more of our employees, so we must continue to work on creating an environment where talented people can do extraordinary things. This environment must be built on trust and our commitment to people. It will be an environment where ideas and information circulate freely through all levels. We will foster a workplace that produces continuous improvement with higher 2 Bausch & Lomb quality products and greater productivity. Through a focus both on increasing individual competence and providing a work environment which allows employees to contribute to the maximum of their potential, we will raise employee satisfaction and bottom-line performance. If we do these things well, we will attract and retain a dynamic, diverse and capable work force that can drive our Company to new levels of achievement. Accelerate new product flow. We are shrinking our time to market -- aiming, for example, to cut by more than a year the time it takes to bring a new Ray-Ban sunglass design to the consumer. In addition, Bausch & Lomb is asking more of its annual research and development spending and we will be taking steps in 1996 to improve the yield from those investments. Competitively enhancing niche acquisitions and more fruitful reinvestments can invigorate our business. We intend also to aggressively defend our present areas of product leadership, like sunglasses, from competitive threat by increasing our focus on advertising. Today, throughout Bausch & Lomb, we are dedicated to identifying the needs of our customers and supplying them with products and services which exceed their expectations. Some of the problems of the past few years clearly arose because we stayed too long with several products that had fallen out of sync with trends in their marketplace. We expect 1996 to provide solid evidence that Bausch & Lomb's product lines are again becoming closely aligned with the forces driving market growth around the world. Recent investments to broaden our product offering reflect an emphasis on businesses that are central to our future. The acquisitions of Arnette Optic Illusions and Award plc early in 1996 logically fortify our competitive positions in sunglasses and contact lenses. Arnette is a designer and marketer of high-performance sports sunglasses and goggles. Bausch & Lomb has been under-represented in this rapidly growing market segment, but will now take on a major role. Arnette sunglasses have earned a strong following among youthful consumers engaged in such sporting activities as cycling, surfing and snow boarding -- people who set styling trends for youth around the world. Coupled with the many new Ray-Ban, Revo and other sunglass models scheduled to be introduced this year, the Arnette acquisition should enable us to improve on the rate of sales growth attained in 1995. Award plc manufactures a high-water, daily disposable soft contact lens in Europe. Its patented cast mold manufacturing technology and very efficient distribution process respond directly to the high volumes, short cycle times and low unit costs needed to make single-use soft contact lenses affordable for consumers and profitable for Bausch & Lomb. A further example of our investment [Photo: WILLIAM H. WALTRIP, Chairman and Chief Executive Officer(right) WILLIAM M. CARPENTER, President and Chief Operating Officer] 1995 Annual Report 3 To Our Shareholders strategies is the $30 million we are spending for the installation of next-generation soft contact lens manufacturing technology which is being developed in combination with IBM. This new technology will significantly lower the unit manufacturing cost of our SofLens66 contact lens which is ideal for two week or more frequent replacement. During 1995, our sales of lenses in this market surged 38% ahead of the preceding year, signaling the excellent potential of this market. To the extent we seek additional acquisitions, they are likely to reflect the pattern established by these transactions -- manageable in scale, easy to finance and very supportive of our existing businesses. It is also worth noting that we are in the process of developing a unified vision-care strategy which leverages our shared strengths and opportunities in contact lenses, lens care and eye care products. There are many areas in the world in which these lines are distributed through common channels. There are also markets in which the lens care business has matured as demand for disposable and frequent replacement contact lenses is exploding. As the worldwide leader in vision care, we can leverage the breadth of our product line and in-market capabilities, especially in markets that are in different stages of evolution. Improve operational effectiveness. As you know, we pledged last year to reduce overhead expenses by $50 million over the next few years. Yes, we want to cut costs to improve the bottom line; but we also want to eliminate the bureaucracy that can stifle initiative. Decisions on how to achieve this reduction in costs should be reached by the end of the year, setting the Company up for further gains in profitability in 1997 and 1998. Our streamlining should improve Bausch & Lomb's bottom line while also restoring some of the responsiveness that endowed the Company's historical success. Bausch & Lomb is striving to be observant, clear-thinking and responsive. We want to be the best player in our markets and are dedicated to providing our people with the support and structure necessary to realize that vision consistently. As part of these efforts, Bausch & Lomb established a $27 million restructuring reserve in the fourth quarter of 1995, about half of which resulted from a planned reconfiguration of our sunglass manufacturing process worldwide. Our new manufacturing strategy incorporates three fully integrated production sites in the U.S., Europe and Asia. This approach will improve the speed to market, flexibility and future profitability of Bausch & Lomb's sunglass business. Build shareholder value. This idea is expressed in most annual reports. So, what's different at Bausch & Lomb? Commitment. We will align intent with execution. We understand very clearly that restoring the Company's reputation, especially in the toughest market of all -- the capital market -- depends on action, not intent. We will not drag our feet. This is evidenced by the accelerated nature of our cost reduction efforts, our current examination of Bausch & Lomb's product portfolio and our more stringent requirements for return on invested capital. We also know that earnings are only one measure of financial progress. During 1995, our Company was very successful in its ongoing efforts to enhance cash flow. $278 million was generated from operations, and these funds were combined with the proceeds from the sale of our sports optics business to facilitate the repurchase of 2.5 million shares of Common stock over the course of the year. In 1996, we plan to continue to repurchase our stock in the open market at a rate of about one million shares, or perhaps greater levels if circumstances warrant. Our capital expenditures for 1996 are budgeted in a range of $130 million, and will be heavily oriented toward our core businesses, particularly contact lenses. Research and development spending is budgeted to increase at a rate of about 15%. 4 Bausch & Lomb Many Areas Performed Well In 1995 The balance of this report on 1995 demonstrates that there's much in which the men and women of Bausch & Lomb can take legitimate pride. In many of our worldwide operations, their effort and performance were truly extraordinary. These areas included our prescription pharmaceutical business, where sales increased almost 30% over the previous year, with a significant percentage of revenues coming from products that have been on the market less than two years. Our pharmaceutical profit margins also continued to expand. The Company's evolving mix of generic and proprietary ophthalmic drugs, together with our highly competitive manufacturing base, positions Bausch & Lomb for further strong gains in performance in this product area during 1996. We were also very pleased by the performance of our biomedical business in 1995. It continued to post moderate sales growth while maintaining strong profitability and cash flow. Within this overall product area, we are making acquisitions and seeking other types of opportunities to speed the development of new biomedical products and services that move beyond the traditional laboratory animal business and put us on the forward edge of new markets. In another key business area, we were successful in defending our share of the contact lens care market against intensified competition from private label products. And it's also worth noting that our lines of eye care products, over-the-counter medications, dental implants and hearing aids all attained revenue growth in 1995 that met or exceeded the 20% level. Daniel E. Gill Retires On behalf of Bausch & Lomb, we express our appreciation to Daniel E. Gill, who retired as chairman and chief executive officer at the end of 1995. Mr. Gill served our Company for 17 years, leading a restructuring in the 1980s that saw Bausch & Lomb grow from a small ophthalmic and scientific instruments company into a global competitor in major healthcare and optical markets. One of management's objectives is to provide an environment in which Bausch & Lomb men and women can succeed. We will do this by bringing clarity to our aspirations and effectively executing a new, more embracing business plan, paying special attention to the values all of us bring to our business conduct. To that, we pledge our very best efforts in 1996 and beyond. Sincerely, /s/ William H. Waltrip William H. Waltrip Chairman and Chief Executive Officer /s/ William M. Carpenter William M. Carpenter President and Chief Operating Officer A NEW SENIOR MANAGEMENT TEAM IS NOW ACTIVELY READYING THE COMPANY FOR A FAR MORE EXCITING FUTURE. William H. Waltrip was named chairman and chief executive officer of Bausch & Lomb in December 1995. He is intimately familiar with the Company, having served as a director for the past ten years. During his business career, he has held numerous senior executive positions, including president and chief operating officer of Pan American World Airways and IU International Corporation and chief executive officer of Purolator Courier Corporation. Also in December, William M. Carpenter was named president and chief operating officer. Mr. Carpenter joined Bausch & Lomb in March 1995 as executive vice president and global business manager -- Eyewear. Mr. Carpenter was previously president and chief executive officer of the U.S. subsidiary of Reckitt & Colman, plc. Earlier in his career, he held a number of executive positions with Johnson & Johnson's healthcare and consumer products businesses. 1995 Annual Report 5 "The secret of success," said British Prime Minister Benjamin Disraeli, "is constancy of purpose." For Bausch & Lomb, constancy is found in the values that guide the corporation: Partnership with employees. Partnership with customers. Innovation and finding a better way. A commit- 1995 Annual Report 6 ment to the communities in which it operates. And a clear understanding that profits are ultimately the by- product of ethical, expert, visionary enterprise. As the following pages demonstrate, Bausch & Lomb's growth and culture are built on its values. And its values are the secret to its long-term success. 1995 Annual Report 7 Importance of Customers and Quality ******** MAKING OUR CUSTOMERS' SUCCESS THE TOP PRIORITY Janice Whisman, a Bausch & Lomb national account manager in Texas, is part of a three-person team that works exclusively with the Kroger stores. "Our whole focus," says Janice, "is to be Kroger's most valued resource in the eye care category by applying our technology to lower our mutual costs and increase their sales. Our goal is to be a long-term partner." 1995 Annual Report 8 Janice and her team are part of Bausch & Lomb's commitment to reinforce customer relationships through enhanced, measurable service improvements. Rather than serve a number of accounts, they devote their efforts and thinking singularly to the needs of one customer. Boston and Envision rigid gas permeable lens materials are at the forefront of lens technology and performance. "The team approach has really paid off," says Whisman. "Since we started in early 1994, Kroger and Bausch & Lomb have had two great years together. In 1995, we were up 50.7% in the general eye care category. Our total business increased by 8.5% while the health and beauty care lines rose 4.5%." Technology is key. More than half of all customers of the Company's Personal Products Division, including the major national accounts, are now linked to Bausch & Lomb through electronic data interchange (EDI), a computerized, paperless ordering and invoicing system. With EDI, ordering is almost instantaneous so stocking shortfalls are practically nonexistent. Some retailers, including Kmart, request Vendor Managed Inventory (VMI), where Bausch & Lomb ships its products automatically to the customer's distribution centers, based on direct access to incoming scanner data. The result is a more profitable balance between low inventories, which reduce costs, and constantly replenished shelf stock, which avoids any loss of sales from out-of-stocks. For a growing number of customers, Bausch & Lomb provides full category management, evaluating the monthly sales and shelf positioning of all brands of eye care products to optimize profit margins and improve sales. Strong brands are merchandised more advantageously. Perpetually weak sellers are reduced in prominence or de-listed. The customer achieves a strategic refinement of shelf inventory that might not otherwise be possible. The consumer is able to consistently find the desired brand and size. "We work with our customers in partnership to help them meet their strategic plans," says Whisman. "And we get results. So when they have eye care issues, we want them to call Bausch & Lomb. That's our goal." ================================================================================ Better Technology, Better Service Ordering rigid gas permeable contact lenses used to take a major account 10 days, a frustrating delay for wearers. In 1995, working together with National Vision Association (NVA) -- the manager of hundreds of Wal-Mart optical departments -- Polymer Technology Corporation streamlined ordering with electronic data interchange, bar coding and rapid overnight delivery. Today, from prescription to pick up, Polymer's popular made-to-order Boston and Envision lenses can be ready in as little as four days, a competitive edge for Polymer and NVA. ================================================================================ The Vendor Managed Inventory program helps speed the delivery of ReNu multi-purpose solution to Kmart and other mass merchandisers. 1995 Annual Report 9 A Partnership with Employees ***** GIVING PEOPLE THE OPPORTUNITY TO EXCEL Derek Sheridan and Carmel Cheasty are part of a remarkable organizational transition at Bausch & Lomb's Waterford, Ireland sunglass plant. In only three years, most of the plant's 250 hourly employees have moved from assembly line style manufacturing into highly productive work teams that are reducing assembly lead times and cutting defect rates by half. 10 Bausch & Lomb "Employees are now solving their own problems," says Derek, a training facilitator at the plant, "and they are being given the skills to do it." One of three fully-inspected sunglass plants in Bausch & Lomb's Global Product Delivery Strategy, Waterford has been training its employees to work in self-directed teams of five to 12 people. The goal is flexibility -- replacing the narrow focus of a single job skill with cross-training, teamwork and the mastery of many skills. Ray-Ban Orbs sunglasses, produced at the Company's Waterford, Ireland plant represent a new generation of contemporary designs that are commanding consumer interest in Europe and other markets. ================================================================================ Uncommon Commitment Employees at Bausch & Lomb's Charles River Laboratories subsidiary have a unique responsibility: They breed and tend thousands of rodents and other animals used for biomedical research. In dedicated teams, they perform their daily routines in sterile isolation, constantly mindful that a single breach in "biosecurity" could compromise the health of an entire colony. "We spend a lot of time educating, training and motivating," says Dave Johst, vice president of human resources. "But the people here are genuinely inspired by the fact that their work is indispensible to life-giving research." ================================================================================ "People still get assembly and machine-skill training," says Derek, "but we also train them in interpersonal and communications skills -- how to listen and be assertive. We do continuous improvement training, team building and leadership training. We even teach our people how to conduct meetings." Much of the training at Waterford encourages employees to think independently and offer suggestions for continuous improvement. "The IQ of the team is greater than any single member," says General Manager Brendan Power. "Instead of waiting for an engineer or an accountant or someone else to make an improvement, the teams will try it themselves. And nine times out of ten they'll come up with the solution." The results have been exceptional. Waterford has halved its defect rate. Soon, a significant number of the 400 individual products manufactured at the plant will no longer require 100% inspection, simply random quality samplings. "There has been a very significant improvement in productivity arising from the fact that the product is made right the first time," says Power. "Our people are building in the quality." For Bausch & Lomb, the growing responsiveness and agility of Waterford's workforce is an invaluable asset in the ever-changing fashion sunglass market. "As consumer requirements change and the marketplace changes," says Butch Sumpter, vice president, global manufacturing operations, Eyewear, "the most significant driving factor is going to be the ability for any manufacturing organization to react quickly and cost-effectively, to translate these requirements into the products of tomorrow. At Waterford, our people are doing that today." Teresa Power, a Waterford, Ireland manufacturing employee, wears Ray-Ban Sidestreet sunglasses, which are experiencing strong global demand since their 1995 introduction. 1995 Annual Report 11 The Role of Profits ***** INVESTING WISELY FOR A PROFITABLE FUTURE Diane Nelson is an aseptic filling operator at one of the newest and best-equipped pharmaceutical plants in the world -- Bausch & Lomb's Tampa, Florida facility. "I've had jobs where I've felt limitations on my success," she says. "Here, I feel like there's an opportunity to reach as far as I can. This Company encourages us not to settle for anything less." 12 Bausch & Lomb During 1994 and 1995 Bausch & Lomb's Pharmaceutical Division received more generic drug approvals than any other company in the U.S. ================================================================================ China: Cultivated Growth Bausch & Lomb entered the Chinese market in 1987, years ahead of competitors. Today, most of China's two million contact lens wearers use Bausch & Lomb lenses and care products, a great start for a brand franchise taking root in a market that will continue to grow 10% per year and could become the world's second or third largest economy by 2004. Recently, the Company expanded its joint venture manufacturing plant in Beijing, continued to educate hundreds of practitioners and formally introduced Ray-Ban sunglasses. Ray-Ban quickly became the leading premium sunglass brand in China. ================================================================================ The Tampa facility is the manufacturing foundation of Bausch & Lomb's U.S. pharmaceutical business. Launched in 1985 as a small start-up with a few ophthalmic drugs and a line of surgical instruments, the division is now the U.S. market leader in ophthalmic generics and an emerging factor in proprietary ophthalmic products. Both markets together are worth about $1.1 billion per year in the United States alone. In 1995, the U.S. pharmaceutical business grew more than 30%, based primarily on its ability to obtain FDA approval for generics. For the years 1994 and 1995, the Bausch & Lomb Pharmaceutical Division received more generic product approvals than any other company in the United States. Most were for eye care products, such as antibiotics, anti-inflammatories and anti-glaucoma solutions, suspensions and ointments. All will carry the trusted Bausch & Lomb name. "The Tampa plant is critical to our growing success," explains Alan Dozier, corporate vice president and president of the Bausch & Lomb Pharmaceutical Division. "We have one of the most advanced plants in the world, staffed by a highly motivated workforce. It was a long-term invest-ment that's now paying off with cost competitive, high-quality products." In the coming years, growth in generics will come from a combination of internal product development, licensing and potentially, acquisitions. In 1995, the division moved further into proprietary ophthalmic products through an agreement with Pharmos to manufacture and market Lotemax, an ophthalmic anti-inflammatory. The agreement includes the co-development of two additional products. The division is also pursuing drug delivery technologies designed to transform generics into patent-protected products with high profit margins. Internationally, the success of the U.S. business is equalled by Dr. Mann Pharma, Bausch & Lomb's German subsidiary and the headquarters of the Company's worldwide pharmaceutical business. A highly respected marketer of both over-the-counter medications and prescription ophthalmics, Dr. Mann registered a number of new products in the worldwide market in 1995 and has many registrations being developed in Europe, Asia and South America including Russia, India and China. Betamann, Floxal and Vidisic contribute to Dr. Mann Pharma's role as one of the leading marketers of ophthalmic pharmaceuticals in Germany. 1995 Annual Report 13 Innovation and Finding a Better Way ***** ALLOWING TALENT THE FREEDOM TO FLOURISH Jay Kunzler and Yu-Chin Lai, principal scientists at Bausch & Lomb's R&D facility in Rochester, spent years creating new polymers before inventing alphafilcon A, the material in SofLens66 contact lenses. "This material is a breakthrough," says Lai. "Its chemistry is unique. Its potential is huge. And there's nothing else like it on the market." 14 Bausch & Lomb Development of SofLens66 lenses began almost incidentally with a request from Bausch & Lomb Europe in 1991 for a high-water contact lens. While the U.S. market had yet to show much interest in high-water contact lenses, demand was taking off in Europe. ================================================================================ A Growing Category Bausch & Lomb has been making anti-reflective coatings for over 50 years, mainly for specialized medical and other lighting applications. In 1995, the Thin Film Technology Division introduced Marathon, an anti-reflective coating for prescription lenses. Highly scratch-resistant and color-neutral, Marathon coatings significantly reduce glare from eyeglass surfaces. "In Europe, about 60% of all prescription eyewear is coated. In Japan, it's 95%," says division president Gayle Johnston. "But in the U.S. it's only 5%. Clearly, Marathon coatings are entering a growing category at the right time." ================================================================================ Kunzler and Lai knew well the challenges of high-water content lenses. The gel-like polymers are notoriously prone to tearing. With alphafilcon A, they solved the problem. "The final material is 66% water which is an exceptionally high water content, which aids comfort," says Kunzler. "It has high tear strength for excellent patient handling and durability. And it's non-ionic. Competing high-water products are ionic and tend to absorb proteins from the eye, unlike aphafilcon A." When released to the European market as Medalist 66 lenses in 1993, this product immediately began capturing market share. "We looked at its success in Europe and realized the potential for a new lens that could compete with disposables in the United States," says Carl Sassano, senior vice president and global business manager -- Contact Lenses. Sassano was the executive champion of a hand-picked team whose job was to bring SofLens66 lenses to the U.S. market as quickly as possible. Led by Debbie Corio, national account manager for retail optical, the team launched SofLens66 lenses in July 1995, the fastest U.S. product introduction in the Company's history. SofLens66 contact lenses moved from design to launch in five months...the fastest product introduction in Bausch & Lomb history. Concurrently, Bausch & Lomb had contracted with IBM to automate the cast molding process. In less than two years, an IBM-engineered prototype machine has demonstrated the possibility of manufacturing alphafilcon A lenses at less than half the cost of conventional cast molding. Bausch & Lomb has since committed $30 million to install this "next generation" of contact lens manufacturing technology. "The prices of today's disposables haven't changed much in five years," says Sassano. "By taking half the cost out of making the lenses, we can greatly improve our return on investment and redirect some of that savings into promotion to further advance market penetration. There's no doubt about the market for SofLens66 lenses. It's a big one." The success of Gold Medalist Toric and SofLens66 contact lenses is based on excellent performance that has earned the support of eye care professionals. 1995 Annual Report 15 Our Company and Our Community ****** CONTRIBUTING TO A BETTER QUALITY OF LIFE "We never really appreciated a bird singing until we recently heard one through the ears of our four-year-old daughter Alysse," wrote Patty and Brent Rathburn of Leucadia, California. "Thanks to you and the Children's Foundation, Alysse is now hearing the birds, music, her own footsteps and even whispers... Our thanks alone will never be enough..." 1995 Annual Report 16 Patty and Brent wrote their thank-you letter in July of 1995 to Sharon Hudgens of the Sears Hearing Aid Center in Carlsbad, California. After months of searching without success for financial assistance to purchase hearing aids for their daughter, they found the telephone number of the Sears outlet in the Yellow Pages. Sharon, a hearing aid fitter, was aware of the Miracle-Ear Children's Foundation and obtained an application for the Rathburns. A short time later, the family was approved and Alysse was fitted with two hearing aids at no cost. Hundreds of families are helped each year by Miracle-Ear Children's Foundation. ================================================================================ The Gift of Vision About one child in every 5,000 is born without the eyes' natural lenses, or must have them removed at birth -- a procedure known as infantile surgical aphakia. To avoid blindness, they wear powerful extended-wear contact lenses until adulthood when intraocular lenses can be implanted. Despite ongoing difficulties in securing the raw material for its SilSoft "aphakic" contact lenses, Bausch & Lomb continues to provide this small patient base with this vital service. "The SilSoft line is not about profits," explains Chuck Dushman, group product manager, Contact Lens Division. "It's about doing the right thing." ================================================================================ Alysse is one of more than 1,200 children who have received hearing aids since the Miracle-Ear Children's Foundation was established in 1990. Headquartered in Minneapolis, Minnesota, the non-profit foundation works through the more than 1,000 Miracle-Ear franchise centers to help children whose families do not qualify for public assistance but can't afford to purchase the aids. "Generally, families with very low incomes can obtain hearing aids through state medicaid," says Dick Brandt, director of the Miracle-Ear Foundation and director, marketing and research/product information for Miracle-Ear. "It's families with annual incomes between $20,000 and $30,000 who have a problem. Insurance doesn't normally cover hearing aids, so they are usually on their own." In 1995, the Foundation received about 300 applications from across the United States and more from franchisees in Puerto Rico, Taiwan and Mexico. About 225 will eventually be approved. In most cases, two hearing aids are supplied to each child, at a retail cost of approximately $1,000 per aid. In 1995, the Foundation also published an informative 16-page pamphlet entitled "Your Child's Hearing Loss, First Steps For You and Your Family." This reassuring pamphlet answers many questions and provides a list of valuable resources for concerned parents. "The Foundation offers Miracle-Ear a unique way to work in partnership with its many franchisees," explains Brandt, "to put something back into the communities where we have a presence." "The long and the short of it," wrote the Rathburns, "is that Sharon Hudgens, Miracle-Ear and the Children's Foundation gave Alysse the chance to hear like a normal child... [We] can never fully express our heartfelt thanks." Sharon Hudgens, a hearing aid fitter in Carlsbad, California fit Alysse Rathburn with two hearing aids at no cost to the family. 1995 Annual Report 17 The Healthcare Segment ================================================================================ THE HEALTHCARE SEGMENT FIVE-YEAR SUMMARY OF RESULTS Dollars In Millions 1991 1992 1993 1994 1995 Net sales $943.8 1,033.2 1,169.2 1,249.9 1,359.5 Business segment earnings $102.4* 176.1 192.3** 91.5*** 229.2+ * Includes restructuring and special charges of $50.3 million. ** Includes restructuring charges of $15.9 million. *** Includes goodwill impairment charge of $75.0 million. + Includes restructuring charges of $7.9 million. Revenues in Bausch & Lomb's healthcare segment increased 9% to a record $1.4 billion in 1995. Earnings for the segment also reached an all-time high. The gain in revenues was led by products in the medical sector, notably contact lenses, pharmaceuticals, dental implants and hearing aids, where sales growth reached double digits. ================================================================================ THE PERSONAL HEALTH SECTOR Contact Lens Care Products Bausch & Lomb's global contact lens care business attained a 5% growth in revenues in 1995, a result which reflected a moderation in demand in the U.S. market versus prior years. Increased soft lens solutions shipments in Europe, Asia and Latin America and good demand for rigid gas permeable lens care products, including the Boston line, led revenue gains. Bausch & Lomb maintained its worldwide leadership position in lens care, including the U.S., where the Company's market share reached a new high during the year. The Company's U.S. sales were even with 1994 results, the first time in many years that domestic revenues have not increased. Total operating earnings were down slightly from 1994. Worldwide sales of ReNu multi-purpose solution, the Company's flagship product, ran slightly ahead of 1994. Outside the U.S., where about 40% of the Company's lens care business originates, demand for the Company's multi-purpose solution continued to grow rapidly. Total non-U.S. lens care sales rose 13% over 1994. European sales increased 13%, while Latin American revenues rose 22% and Asian sales grew 10%. The Company's line of rigid gas permeable contact lens solutions continued to perform in an excellent manner with a 16% increase in global revenues over 1994. Contributing to these results were the successful launches of two new products in the U.S.: Boston Simplicity, the first multi-purpose solution for rigid gas permeable lenses in this market, and Boston Advance comfort formula conditioning solution, an improved version of the Company's leading product in this category. Bausch & Lomb's leading line of contact lens care products are manufactured and sold around the world. The outlook for the U.S. lens care business is mixed. Total soft lens care sales are expected to remain flat in 1996, with gains by multi-purpose solutions and lubricant lens care products offsetting a continuing decline in traditional products such as saline, daily cleaners and enzymatic tablets. This shift is being driven by the increased use of frequent replacement and disposable contact lenses. The Company's strong share of the chemical market will be challenged again in 1996 by new competitive entries. It is encouraging to note that the ReNu line remains the number-one brand both with doctors and at retail, despite several new competitive entries in 1994 and 1995. ============================== [BAR CHART] ================================== Worldwide Sales For RENU Product Line Dollars In Millions 91 $111 92 $152 93 $197 94 $260 95 $277 ================================================================================ 18 Bausch & Lomb This strong brand name provides a platform for our continued leadership in the chemical market. Outside the U.S., the potential for future sales growth is substantial. In most countries of the world, the contact lens wearer population is increasing. Additionally, multi-purpose solutions, which currently comprise more than half the U.S. market, represent less than a quarter of the European market and virtually none of the Japanese market. Boston Simplicity solution's one-bottle regimen for rigid gas permeable lenses eliminates the need for two separate products to clean and condition lenses. ================================== [PIE CHART] ================================= Geographic Mix Of Bausch & Lomb's 1995 Lens Care Revenues U.S. 61% CANADA & LATIN AMERICA 6% EUROPE, MIDDLE EAST & AFRICA 17% ASIA-PACIFIC 16% ================================================================================ U.S. Share Soft Lens Care Starter Kits 1993 1994 1995 ReNu Multi-Purpose Solution 41% 42% 42% Competitor 1 40% 40% 35% U.S. Market Share Chemical Disinfectant Segment 1993 1994 1995 Bausch & Lomb 32% 35% 35% Competitor 1 31% 32% 31% In these regions, convenience is a major factor driving consumer preference, and multi-purpose cleaners address this need. Significant opportunities for other types of lens care solutions also exist in international markets. In response to those opportunities, a new hydrogen peroxide lens disinfecting product was launched in Europe in 1995. The Company will rigorously defend its commanding 30% share of the global lens care market. This effort will include actions to speed the further development of markets outside the U.S., as well as continuing programs to maintain professional support for ReNu multi-purpose solution. This product is the number-one brand recommended by U.S. eye care professionals. Consumer loyalty to ReNu multi-purpose solution is currently more than 80%, one of the highest rates for health and beauty products sold at retail in the U.S. Oral Care Products The Interplak line experienced a substantial reduction in revenues for 1995, particularly in the fourth quarter. A weak retail environment and the arrival of new competitors were factors. However, operating performance for the oral care line improved due to a consolidation of operations in Rochester, New York and other cost reductions. These savings should be fully evident in 1996. Skin Care Products In its second full year of marketing, Curel therapeutic moisturizing lotion achieved 17% revenue growth. Curel lotion's market share rose to a record high in 1995, becoming one of the most popular brands in the therapeutic segment of the hand and body lotion market, which is the fastest-growing part of the overall lotion business. The Curel line was significantly enhanced in 1995 with the introduction of Curel alpha hydroxy dry skin lotion which met with strong initial consumer acceptance. Curel lotion's proprietary formulation, which provides long-lasting, non-greasy moisturizing, is an acknowledged standard for the effective treatment of dry skin. 1995 Annual Report 19 The Soft Sense brand, which competes in the cosmetic segment, is being repositioned with new graphics and two new products: fragrance free and alpha hydroxy. Curel and Soft Sense lotions each recently introduced a new alpha hydroxy formula. Eye Care Products The Company's eye care products achieved record results in 1995, with revenue growth exceeding 20%. Bausch & Lomb's largest eye care product, Moisture Drops lubricant eye drops, again posted increased revenue growth. Opcon-A eye drops recorded its first full year of sales in 1995, and generated brisk demand. It was the first antihistamine/decongestant eye drop to gain FDA approval for the over-the-counter market, and unit sales exceeded those of all competitors combined. Since the Company's Opcon-A drops provide relief for itching and redness caused by ragweed, pollen and animal hair, in 1996 the Bausch & Lomb Allergy Drops brand will be repositioned under the strong Bausch & Lomb Sensitive Eyes trademark for the large non-allergy redness relief market. Opcon-A drops combine the actions of an ocular decongestant and antihistamine to relieve itching and redness commonly associated with ragweed, pollen and animal hair. Eye drop products are expected to continue to generate strong sales growth in 1996 and beyond. Over the long term, the Company intends to continue to introduce superior eye care technology focusing on artificial tears and allergy relief products. Over-the-Counter Medications The OTC medications line consists of analgesics, sedatives, sleep aids, hay fever remedies, eye drops, food supplements, anti-depressants and nasal decongestants. These products are distributed primarily in Germany by the Company's Dr. Mann Pharma subsidiary. Spurred by strong demand for hay fever and tranquilizer products, over-the-counter medication sales surpassed expectations with revenues increasing almost 30% in 1995. Highlights of the year included strong sales of the Vividrin brand of hay fever products, which increased its market share to a commanding 64%. Vivimed analgesic also performed well, despite a category sales decline of 4%. Vivinox sleeping and tranquilizing products, enjoyed strong growth, as did Viviplus, an anti-depression drug launched in 1995, which achieved an 18% market share and the category's number-two position in its first full year of marketing. The Vivivit family of OTC products contributed to an increase of nearly 30% in revenues for the Company's line of over-the-counter medications in 1995. 20 Bausch & Lomb THE MEDICAL SECTOR Contact Lenses Worldwide sales of Bausch & Lomb contact lenses advanced 14% in 1995. Planned replacement and disposable lenses paced this revenue growth and achieved a sales increase of more than 35%. On a geographic basis, total contact lens revenues outside the U.S. rose 20% over 1994 while sales in the U.S. rose 6% for the year. Overall, the business operated at a loss, but actions are being taken to lower costs and improve productivity in future years. Bausch & Lomb is gaining competitive strength as a low-cost, high-volume producer. These attributes are critical to success in the rapidly growing disposable and frequent replacement lens market segment. During 1995, the Company committed $30 million to install the next generation of soft contact lens manufacturing technology. This investment followed the completion of the first phase of a joint development program with IBM. The new technology will significantly reduce the unit manufacturing cost of the Company's soft contact lens products and substantially increase its contact lens unit production capacity. ================================= [PIE CHART] ================================= Geographic Mix Of Bausch & Lomb's Contact Lens Revenues U.S 39% CANADA & LATIN AMERICA 6% EUROPE, MIDDLE EAST & AFRICA 22% ASIA-PACIFIC 33% ================================================================================ ================================= [PIE CHART] ================================= Percentage Of Installed Base Of U.S. Wearers At Year-End 1995 Using Disposable, Traditional, And Frequent Replacement Lenses DISPOSABLE 36% TRADITIONAL 46% FREQUENT REPLACEMENT 17% DAILY REPLACEMENT 1% Source: Bausch & Lomb Estimate ================================================================================ This new manufacturing technology will be used to make Bausch & Lomb's new high-water SofLens66 contact lens. The SofLens66 contact lens was introduced in the U.S. in the second half of 1995 and is made from a patented polymer which provides outstanding visual acuity and comfort. SofLens66 lenses will be distributed throughout the U.S. in 1996 and are ideal for replacement at intervals of two weeks or more frequently. The February 1996 acquisition of Award plc, an innovative low-cost producer of daily disposable contact lenses, gives the Company an immediate entry into this quickly emerging market segment. Award has developed a high-volume, short cycle-time manufacturing technology and a very efficient distribution process that makes single-use contact lenses affordable for consumers. Expansion of Award's product distribution throughout Europe and plans to apply for approval to market the lens in the U.S. are in progress. The SofLens66 contact lens is made from a patented new polymer which provides outstanding visual acuity and comfort. Optima FW lenses accounted for more than half of the Company's U.S. contact lens sales in 1995 and achieved strong revenue gains. Global contact lens sales are well-balanced, with Europe providing about 22%, of revenues, Asia-Pacific 33% and the U.S. 39%. The international disposable market is generally at an earlier stage of development than the U.S. and the 1995 Annual Report 21 Company is focusing on opportunities to rapidly gain market share. The launch of the Company's SofLens66 product, known as Medalist 66 lenses outside the U.S., was expanded in Europe in 1995. Other new product introductions included the Gold Medalist Toric lens in Europe. During 1996, sales and profitability for the contact lens business are anticipated to improve at a good rate as a result of new manufacturing technologies, new products and the further development of market opportunities outside the U.S. Pharmaceuticals The Company's global pharmaceutical customers include doctors, pharmacists, hospitals and managed care organizations, to whom patients with a wide range of eye ailments look for care. Both healthcare providers and patients the world over trust the Bausch & Lomb and Dr. Mann Pharma names as a source for high-quality eye care. In 1995, global pharmaceutical revenues approached $100 million, up 28% over the previous year. Operating earnings improved at an even higher rate. The U.S. accounted for 62% of 1995 sales, with the balance coming from the Company's Dr. Mann Pharma subsidiary in Germany. In the U.S., the Company's major products include OptiPranolol, a proprietary ophthalmic beta-blocker used to treat glaucoma; Muro, a proprietary line of solutions and ointments used for corneal edema and Levobunolol, a generic ophthalmic beta-blocker, which was introduced in the first quarter of 1994 and now has a 50% share of the generic beta-blocker market segment. Crolom, a new mast-cell stabilizer solution used to treat vernal conjunctivitis, was introduced in early 1995 and achieved a 35% share of its market. Dr. Mann Pharma experienced strong revenue growth in 1995 and is the German market leader for dry eye treatment, ophthalmic antibiotics and red eye treatment products. New products expected to be launched in 1996 include Lotemax, a proprietary ophthalmic drug used to treat ocular inflammation and a dry eye ethical over-the-counter product, Muro Ocugel. This is a modified version of Dr. Mann Pharma's highly successful product, Vidisic. Enthusiastic doctor and pharmacist acceptance of Crolom, OptiPranolol, Muro 128 and Levobunolol medications contributed to outstanding sales and earnings growth for the Company's U.S. pharmaceutical business. ================================= [PIE CHART] ================================= Geographic Mix Of Bausch & Lomb's Pharmaceutical Revenues 1995 U.S 62% NON-U.S 38% ================================================================================ ================================= [PIE CHART] ================================= Composition Of U.S. Ophthalmic Pharmaceutical Market BETA BLOCKER 26% MIOTIC/GLAUCOMA 18% CORTICOIDS 12% ANTI-INFECTIVES 9% ARTIFICIAL TEARS 7% DECONGESTANTS 9% OTHER 19% ================================================================================ Bausch & Lomb has global capabilities in its pharmaceutical operations that provide the basis for continued strong growth in sales as well as profitability. The Company has secured more than 25 abbreviated new drug application (ANDAs) approvals in the U.S. in the last two years, thus demonstrating an ability to develop beneficial products and expedite their introduction. In the U.S. and Europe, it has in place 22 Bausch & Lomb over 50 ophthalmic drugs covering all major therapeutic categories. It also has global sterile manufacturing facilities -- in the U.S., Europe, China and India - - -- and a well-established global business structure. Presently, the Company has over 400 product approvals in 73 countries, and more than 40 approvals are planned in 1996. Hearing Care In 1995, the U.S. hearing care market rebounded, growing 8%. Bausch & Lomb's own Miracle-Ear business, with the strongest brand name in the category, posted a sales gain of 20%. New products contributed substantially to the Company's progress, especially the Mirage line, a very small hearing aid which fits deep within the ear canal. The Bausch & Lomb programmable hearing aid, launched in the second quarter, gained increasing acceptance as the year progressed. Both of these high-margin products are expected to build on their initial success, helping to sustain the positive sales and earnings trends begun in 1995. New products scheduled for introduction in 1996 will enable Miracle-Ear hearing aids to comfortably fit a larger population of potential users. They will include new circuitry options that rank with the most advanced in the hearing aid field. Small in-the-canal hearing aids and new programmable models are earning an enthusiastic reception among consumers. Dental Implants Revenues for Steri-Oss dental implants and instruments rose more than 20% over 1994 and market share increased despite intensified global competition. The Company is a leading producer of prosthetic and restorative dental work products, primarily jaw anchors for artificial teeth that replace those lost to disease or accident. Several important new products reached the market in 1995, including the Bio-Esthetic Abutment System that anatomically shapes the implant for a more esthetically pleasing result. Steri-Oss also established new distribution in Israel and obtained a number of approvals for sale of its products in Japan. The Bio-Esthetic line will be a primary focus of the Company in 1996. THE BIOMEDICAL SECTOR Consolidated revenues for the biomedical sector increased 7% over 1994, and both the profitability and cash flow of this business remained strong. Research Animals Charles River Laboratories currently commands more than 40% of the worldwide market for purpose-bred rodents used in biomedical research. With an international technical staff of over 50 veterinarians and PhDs, Charles River is uniquely positioned to respond to more demanding customer requirements in the animal business. These include the testing of new pharmaceutical compounds on rodent models, the characterization and mass production of enhanced rodent research models, and serving as an international outsourcing alternative to pharmaceutical and biotechnology companies which are increasingly committed to transitioning their animal studies to a qualified service provider. For example, Charles River currently is injecting human tumors provided by a pharmaceutical customer into a special strain of rodents, applying therapeutic compound candidates and reporting data back to the customer. Global ISO 9000 certification is another major advance in Charles River's program to standardize product quality across the world. In keeping with its goal of offering customers an "International Standard" product that remains consistent and reliable over time and geography, Charles River 1995 Annual Report 23 continues to position itself as the only truly global provider in its industry. Future trends in the mix of product sales should continue to reflect increasing demand for specialized high-value rodent models, such as immunocompromised mice used in AIDS research. However, the overall rodent business is not planned for high growth. Today, sales of laboratory animals represent approximately 85% of total biomedical product sales. This percentage is expected to decline each year, offset by the very rapid emergence of a new family of Charles River products and services based on emerging biomedical technologies. Biomedical Products And Services One example of Charles River's emerging focus on biomedical products is the Endosafe line of endotoxin test kits. These kits are used to test for bacterial contamination in injectable drugs and invasive devices as part of the manufacturing quality control regimen mandated by the FDA. Endosafe manufactures the Limulus Amebocyte Lysate Assay, the only in vitro endotoxin test approved by the FDA, and its revenues grew more than 80% during 1995. Charles River is also the world's largest producer of specific pathogen-free eggs, used principally in the production of poultry vaccines. Demand for these products is being fueled by a global increase in consumer demand for poultry products. Revenue gains in this area exceeded 20% in 1995. Continued progress was attained on collaborative efforts with BioTransplant, Incorporated, based on a program through which organs from a special strain of inbred swine (produced exclusively by Charles River) will be made available for xenotransplantation, or transplantation across species. This is an undeveloped market estimated to have a potential value of more than $1 billion within the next decade. The goal of the BioTransplant/Charles River project is to develop a scientific protocol so that swine can become a source of hearts, kidneys, livers and other organs for human transplantation in response to the insufficient availability of suitable human organs. This would be made possible through the combined utilization of Charles River's specialty swine and BioTransplant's proprietary portfolio of methods and products designed to selectively inhibit and modify a patient's immune system so that it will accept foreign organs through a technique known as "specific immune tolerance." If this collaborative effort is successful, organ recipients will no longer be required to remain on powerful immunosuppressive drugs for the rest of their lives. Although there are 18,000 organ transplants performed in the U.S. each year, a qualified U.S. patient population of over 40,000 are awaiting donor organs. Charles River is the world's largest manufacturer of specific pathogen- free eggs. Charles River's prospects for further growth in 1996 remain excellent, with the potential to further leverage expected sales gains through the acquisition of new biomedical product lines. Charles River continues to focus on growing its portfolio of services in anticipation of increasing worldwide outsourcing demand by the pharmaceutical industry. Experience and technology, an international presence, and an established reputation as an industry leader positions Charles River globally as a unique product and service provider. ================================= [PIE CHART] ================================= Geographic Mix Of Bausch & Lomb's 1995 Biomedical Revenues U.S 40% CANADA & LATIN AMERICA 3% EUROPE, MIDDLE EAST & AFRICA 31% ASIA-PACIFIC 26% ================================================================================ 24 Bausch & Lomb The Optics Segment ================================================================================ THE OPTICS SEGMENT FIVE-YEAR SUMMARY OF RESULTS Dollars In Millions 1991 1992 1993 1994 1995 Net Sales $576.3 657.9 660.9 642.8 573.4 Business Segment Earnings $137.9 135.5 79.6* 72.1 42.3** Net Sales*** $522.8 586.6 561.5 531.8 555.1 Business Segment Earnings*** $134.9 129.9 71.6* 61.7 43.6** * Includes restructuring and special charges of $32.9 million. ** Includes restructuring charges of $15.8 million. *** From continuing operations. ================================================================================ Optics segment revenues for continuing product lines rose 4% in 1995. Sunglass products, led by the RAY-BAN line, achieved a 6% growth in sales as new designs met with very enthusiastic market acceptance. Segment earnings were depressed by a charge to restructure manufacturing operations. Sunglasses Worldwide sunglass revenues rose 6% over 1994 as the Company responded to major shifts in consumer styling preference and the continued surge in demand for sports-related sunglasses. Bausch & Lomb, with a global market share approximating 43%, originally built its worldwide leadership on the classic appeal of its Ray-Ban Wayfarer sunglasses and Aviator models. Recently, however, the market for premium-price eyewear has changed dramatically with sales of these classic models lagging behind new, fast-growing contemporary and sport segments of the sunglass category. Accordingly, the Company has been aggressively shifting its priorities, leveraging its global brands, market expertise and existing infrastructure to bring new lines and products to market. Both the challenge and the potential of the evolving sunglass category are considerable. The global market is expected to grow at a compound rate of 8-10% over the next several years, paced by strong double-digit growth in Asia and Latin America compared to more modest single-digit growth expectations in North America and Europe. Distribution is shifting away from traditional channels, like optical outlets and department stores, to specialty stores. This shift is readily apparent in the U.S., where premium priced sunglasses sold through traditional outlets have steadily dropped, while specialty stores now have the largest market share with more than 30% of retail sales. The same shift is expected to gain momentum worldwide. Revo created and leads the fast-growing ultra-premium sunglass category. Half of Revo's 1996 sales are expected to come from products introduced since 1992. In another critical market shift, the majority of sunglass consumers -- 61% -- are now 16-34 years of age, a trend-conscious group committed to self-expression. They are driving category growth and are eager to experiment with new styles and brands. ================================= [PIE CHART] ================================= Share Of Global Sunglass Market BAUSCH & LOMB 43% DE RIGO 7% OAKLEY 11% LUXOTTICA 6% CORNING 2% OTHER 31% Source: Bausch & Lomb Estimate ================================================================================ Bausch & Lomb's strategy to tap into these trends incorporates aggressive new product introductions, strong new product advertising to consumers, new merchandising materials to increase brand awareness in stores and faster product development and delivery. A major benchmark of Bausch & Lomb's success will be increased sales from new products. Consumer interest in new types of sunglasses is clear: For example, half of the Revo line's sales for Ray-Ban Sidestreet sunglasses were one of the Company's most successful products in 1995. 1995 Annual Report 25 ================================= [PIE CHART] ================================= Geographic Mix Of Bausch & Lomb Sunglass Revenues U.S 47% CANADA & LATIN AMERICA 10% EUROPE, MIDDLE EAST & AFRICA 25% ASIA-PACIFIC 18% ================================================================================ 1996 are expected to come from products introduced since 1992, and 20% are expected to come from new 1996 products. Overall, the Company is aiming to triple the portion of total sunglass sales usually derived from new products introduced in the last two years to 40% by the end of 1996. Distribution is expected to widen substantially into new global markets. Numerous new Ray-Ban designs will be launched globally in 1996; countries where Liz Claiborne sunglasses are sold will be expanded from three to 20 in 1996; and Killer Loop sunglasses, currently limited to the U.S. and Canada, will expand throughout Europe and Asia and reach 18 countries by the end of 1996. New product development will generally pursue innovative design and technological improvements. For example, a new polycarbonate lens incorporates Revo's classic lens technology by using stacked thin-film coating to block ultraviolet light and control both infrared and short-wave blue light. Innovative products will also spur the Company's entry into new markets, particularly for the Ray-Ban and Killer Loop lines where design and technology are driving efforts to reach the growing youth market. To fill gaps in its portfolio of brands the Company is exploring suitable acquisitions. This was illustrated by the recent acquisition of Arnette Optic Illusions, an action that brings to Bausch & Lomb one of the fastest growing sunglass brands targeted at the exploding market for sports-related products. Ray-Ban xrays sunglasses feature the first polycarbonate lenses worthy of the Ray-Ban name and deliver the impact- and scratch-resistance serious athletes demand. To provide more reliable and cost-effective global product delivery, the Company is restructuring its manufacturing operations and establishing three product supply centers. Each will integrate core Bausch & Lomb technical processes, product fabrication and assembly, and distribution and logistics processes. In addition, vendor relationships are being examined to improve the Company's overall product delivery, and processes are being streamlined to reduce costs. These actions will enhance our responsiveness to market demand and should boost sunglass profitability in the future. Liz Claiborne sunglasses will be sold in 20 countries in 1996, up from only three countries in 1995. Optical Thin Films For 1995, revenues from the optical thin film technology business declined 8%. This was primarily attributable to a change in requirements by a major customer in Europe. The Company's business continues to be comprised primarily of coatings provided to display lamp manufacturers, a segment where Bausch & Lomb is the global market share leader. The Company has begun to diversify beyond its core general lamp business, recently introducing high-quality coatings for theatrical and medical lights, both of which exceeded their 1995 sales targets. Late in 1995, the Company introduced its Marathon brand of scratch-resistant, anti-reflective coatings for prescription lenses which it expects will provide significant sales growth in 1996 and beyond. 26 Bausch & Lomb Financial Section - - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT The following financial statements of Bausch & Lomb Incorporated were prepared by the Company's management, which is responsible for their reliability and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management with consideration given to materiality. Financial information elsewhere in this annual report is consistent with that in the financial statements. Management is further responsible for maintaining a system of internal controls to provide reasonable assurance that Bausch & Lomb's books and records reflect the transactions of the Company; that assets are safeguarded; and that its 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 that their audits were conducted in accordance with generally accepted auditing standards which require a review and evaluation of internal controls to determine the nature, timing and extent of audit testing. The Report Of Independent Accountants is on page 65 of this report. The recommendations of the internal auditors and independent accountants are reviewed by management. Control procedures have been implemented or revised as appropriate to respond to these recommendations. In management's opinion, as of December 30, 1995, the internal control system was functioning effectively and accomplished the objectives discussed herein. /s/ William H. Waltrip /s/ Stephen C. McCluski William H. Waltrip Stephen C. McCluski Chairman and Senior Vice President Chief Executive Officer Finance REPORT OF THE AUDIT COMMITTEE The audit committee of the board of directors is comprised of three outside directors. The members of the committee are: Kenneth L. Wolfe, Chairman; Linda Johnson Rice; and Alvin W. Trivelpiece, Ph.D. The committee held six meetings during 1995. The audit committee meets with the independent accountants, management and the internal auditors to provide reasonable assurance that management fulfills its responsibilities in the preparation of the financial statements and in the maintenance of an effective system of internal controls. The audit committee reviews the performance and fees of the independent accountants, recommends their appointment and meets with them and the internal auditors, without management present, to discuss the scope and results of their audit work. Both the independent accountants and the internal auditors have full access to the audit committee. /s/ Kenneth L. Wolfe Kenneth L. Wolfe Chairman Bausch & Lomb Incorporated and Consolidated Subsidiaries 27 Financial Review - - -------------------------------------------------------------------------------- This financial review, which should be read in conjunction with the accompanying financial statements, contains management's discussion and analysis of the Company's results of operations, liquidity and progress toward stated financial objectives. As more fully described in Note 2 - Restatement Of Financial Information, 1993 and 1994 financial information contained herein has been restated. This reflects 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. RESULTS OF OPERATIONS Bausch & Lomb strives to maximize total return to shareholders through a combination of long-term growth in share price and the payment of cash dividends. Although dividends have risen at a compound annual rate of 9% over the most recent five-year period, total return to shareholders in 1994 and 1995 was impacted by a decline in the Company's stock price stemming from the operational issues and other factors discussed in this review. The Company systematically measures its financial progress against the Standard & Poors Healthcare Composite Group, with the goal of placing Bausch & Lomb among the top performers for each of its selected financial objectives. To achieve this goal, the Company has established multi-year objectives of compound annual sales and earnings growth in the range of 10% and, on a longer term basis, a return on equity of approximately 20%. The Company also emphasizes the need for operational stability, predictability and profitability. The Company's management team is firmly committed to achieving these performance objectives on a going-forward basis. Comparability Of Business Segment Information An analysis of the Company's operating results requires the consideration of certain significant events as described below. In December 1995, the Company's board of directors approved plans to restructure portions of the sunglass, biomedical and contact lens operations as well as certain corporate administrative functions and a pre-tax restructuring charge of $27 million was recorded. The major components of this restructuring charge are described more fully in Note 3 - Restructuring Charges. These actions are expected to contribute savings of $9 million in 1996 and $24 million on an annualized basis thereafter. As announced on May 1, 1995, the Company completed the sale of its Sports Optics Division, which marketed binoculars, riflescopes and telescopes. Current year results reflect the operations of this business for only three months. The sports optics business contributed approximately $18 million, $111 million and $99 million in optics segment revenues in 1995, 1994 and 1993, respectively. Operating earnings from this business were breakeven in 1995, $10 million in 1994 and $8 million in 1993. In December 1994, decisions were made fundamentally realigning global oral care operations, including centralizing management and redirecting most non-U.S. operations to selected distributors. These decisions were based on increased competition, a significant decline in market share and operating losses which greatly reduced estimated future cash flows for this business. They also reflected the Company's belief that future strategic investments in its core and emerging businesses would provide higher long-term shareholder returns. As a result, the Company recognized a goodwill impairment charge of $75 million with no associated tax benefit. In determining the amount of the impairment charge, the Company developed its best estimate of operating cash flows over the remaining business life cycle, assumed to be 14 years. Future cash flows, excluding interest charges, were discounted using an estimated 8.6% incremental borrowing rate. 28 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- 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. All actions contemplated at the time of establishing the charge have been completed and no accruals remain as of December 30, 1995. The Company estimates that savings realized from these actions were approximately $20 million in 1995. Operating Results By Business Segment Bausch & Lomb's operating results are reported in two business segments, healthcare and optics. The healthcare segment includes personal health, medical and biomedical products. In the personal health sector, the Company's principal lines include contact lens care products, eye care solutions, over-the-counter medications, skin care products and oral care products. Medical sector lines include contact lenses and lens materials, prescription pharmaceuticals, hearing aids and dental implants. Biomedical sector lines include purpose-bred laboratory animals for biomedical research, specific pathogen-free eggs for vaccine production and a variety of biotechnical and professional services provided to the scientific research community. These products accounted for 70% of the Company's reported 1995 revenues and 84% of its reported business segment earnings. Principal lines of business in the optics segment include sunglasses and optical thin film coating services and products. This segment also includes results from the Company's divested sports optics business. Optics segment products accounted for 30% of the Company's reported revenues and 16% of its reported business segment earnings. Absent restructuring charges, the optics segment would have contributed earnings that were more proportional to its share of total sales. The Company's reported results for the three-year period discussed in this review include the effect of the significant events described previously. A summary of sales and earnings by business segment, corporate administration expense and operating earnings, and comparable basis results which exclude the divested sports optics business and the costs associated with the restructuring and goodwill impairment charges described above follows:
1995 1994* 1993* - - ---------------------------------------------------------------------------------------------------------------------------- Comparable Comparable Comparable Dollar Amounts In Millions As Reported Basis As Reported Basis As Reported Basis - - ---------------------------------------------------------------------------------------------------------------------------- NET SALES: Healthcare $1,359.5 $1,359.5 $1,249.9 $1,249.9 $1,169.2 $1,169.2 Optics 573.4 555.1 642.8 531.8 660.9 561.5 - - ---------------------------------------------------------------------------------------------------------------------------- Total $1,932.9 $1,914.6 $1,892.7 $1,781.7 $1,830.1 $1,730.7 ============================================================================================================================ EARNINGS: Healthcare $229.2 $237.1 $91.5 $166.5 $192.3 $208.2 Optics 42.3 59.5 72.1 61.7 79.6 104.5 - - ---------------------------------------------------------------------------------------------------------------------------- Business segment earnings 271.5 296.6 163.6 228.2 271.9 312.7 Corporate administration expense 60.9 57.9 43.8 43.8 47.0 45.8 - - ---------------------------------------------------------------------------------------------------------------------------- Operating earnings $210.6 $238.7 $119.8 $184.4 $224.9 $266.9 ============================================================================================================================
*Amounts presented in this table and in all subsequent discussions have been restated for certain items as more fully described in Note 2 - Restatement Of Financial Information. The discussion of results which follows focuses on the comparable basis operating performance and trends. Net Sales Consolidated reported revenues of $1,933 million in 1995 increased $40 million or 2% over 1994. Favorable exchange rate changes increased sales in U.S. dollars by $58 million or 3%. In 1994, reported revenues increased $62 million or 3% over 1993, including the favorable effect of changes in currency exchange rates which increased sales in U.S. dollars by $6 million. Bausch & Lomb Incorporated and Consolidated Subsidiaries 29 Financial Review - - -------------------------------------------------------------------------------- Comparable consolidated revenues totaled $1,915 million in 1995, an increase of $133 million or 7% from 1994. In 1994, sales increased $51 million or 3% on a comparable basis from 1993. Consolidated reported revenues have increased at compound rates of 4% and 7% for the most recent three- and five-year periods, respectively. On a comparable basis, these rates were 6% and 8%, respectively. Business Segment And Operating Earnings Business segment earnings of $272 million in 1995 improved $108 million or 66% from 1994 and operating earnings of $211 million increased $91 million or 76% from the prior year period. Fluctuations in foreign currency exchange rates improved operating earnings comparisons to 1994 by approximately $8 million or 7%. On a comparable basis, business segment earnings of $297 million for 1995 improved $68 million or 30% from 1994, and operating earnings totaled $239 million, an increase of $54 million or 29% from the prior year period. The ratio of business segment earnings to sales was 15.5% in 1995 versus 12.8% in 1994 and 18.1% in 1993. Business segment earnings in 1994 totaled $164 million, a decline of $108 million or 40% from 1993. Fluctuations in foreign currency exchange rates had virtually no net impact on 1994 business segment earnings versus the prior year. On a comparable basis, business segment earnings for 1994 totaled $228 million, a decline of $84 million or 27% from 1993. Operating earnings were $120 million in 1994, a decrease of $105 million or 47% from 1993. On a comparable basis, operating earnings of $184 million in 1994 decreased $82 million or 31% from 1993. As reported, three-year annual compound growth for segment earnings has been negative and five-year compound annual growth was 1%. On a comparable basis, three-year compound annual growth has been negative, while five-year compound annual growth was 3%. Healthcare Segment Results Healthcare segment revenues advanced $110 million or 9% over 1994 to $1,359 million. In 1994, healthcare segment revenues advanced $81 million or 7% over 1993. Major product sector revenues as a percentage of total segment sales are presented in the following table: Healthcare Segment Sales By Product Sector 1995 1994 1993 - - ------------------------------------------------------- Personal health 50% 53% 53% Medical 36% 33% 33% Biomedical 14% 14% 14% ======================================================= 1995 Versus 1994 Within the personal health sector, 1995 revenues improved 4% from the comparable 1994 level. The Company's lines of soft lens care solutions, including the ReNu brand, advanced more than 10% in non-U.S. regions. However, in the U.S., soft lens care revenues decreased 4%. The Company believes this decline is attributable to a trend toward lower retail inventory levels and a reduction in dedicated shelf space in the saline segment of this market. Revenues for the Company's lines of rigid gas permeable (RGP) solutions advanced at double-digit rates in most geographic areas and reflect revenues from new products, including Boston Simplicity and an improved formula Boston Advance. Skin care revenues advanced 6% during the year and included results for the recently introduced Curel Alpha Hydroxy product line. Eye care products in the U.S. attained a 22% increase in sales, benefiting from increased sales of Opcon-A, an antihistamine/decongestant introduced in the fourth quarter of 1994, which has achieved a significant market position. The Company's line of European over-the-counter pharmaceuticals achieved a double-digit increase over 1994 driven by strong performance of hayfever medications and sleeping aids, as well as analgesic and nutraceutical products, including the fourth quarter launch of Vivivit Multi. Revenues for consumer oral care products were nearly 30% below 1994 as shipments of Interplak power toothbrushes declined in the U.S., Germany and Canada. This business has been impacted by intense competition, and during 1996 the Company's board of directors authorized management to explore the possible divestiture of the Interplak line. Also contributing to oral care product sales shortfalls was the discontinuation of a line of mouthwash in the U.S. 30 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Medical sector sales rose 18% from comparable 1994 levels. Worldwide contact lens revenues advanced 14%, led by a 38% increase in sales of planned replacement lens products, most notably in the U.S., Europe and Asia-Pacific regions. Sales of traditional contact lenses increased significantly in Japan. However, sales for these products decreased 17% in the U.S. and were relatively even with 1994 in other geographic areas, reflecting a general market trend and the Company's strategic shift in focus toward planned replacement lenses. This was clearly evidenced in 1995, when revenues for planned replacement lenses equaled those for traditional lenses for the first time. Worldwide revenues for RGP lenses and lens materials improved 10% and included sales of the new Boston 7 and Boston ES lens materials. Worldwide ophthalmic pharmaceutical revenues improved 28%. Within the U.S., these results were attributable to the success of recently introduced products, including Tobramycin, a generic version of Tobrex, Levobunolol, a generic version of Betagan, and Crolom, which is indicated for vernal keratoconjunctivitis, an allergic eye condition. Revenues for prescription pharmaceuticals in Europe also advanced from the prior year. Increased demand was also noted for the Company's lines of dental implants and hearing aids. Hearing aid revenues rose 20% in response to improved overall market conditions and encouraging consumer demand for the recently introduced Mirage completely in-the-canal product and a new line of programmable hearing aids. A 7% improvement in the Company's biomedical sector reflected increased shipments of specific pathogen-free eggs and toxicology products, as well as the favorable impact of foreign currency rate fluctuations on animal operations outside the U.S. Reported healthcare segment earnings of $229 million advanced $138 million as compared to the 1994 level of $92 million. Operating margins in the healthcare segment were 16.9% in 1995, 7.3% in 1994 and 16.4% in 1993. On a comparable basis, healthcare segment earnings of $237 million in 1995 increased $71 million or 42% from 1994, and operating margins were 17.4% in 1995, 13.3% in 1994 and 17.8% in 1993. The results for 1995 reflect significantly reduced operating losses for planned replacement lens products and hearing aids, due to the margin impact of higher sales as well as decreased spending for advertising and selling. Improved results were also noted for prescription pharmaceuticals, reflecting the margin impact of strong sales growth. Oral care products continued to incur operating losses in 1995, however results improved from 1994, reflecting the positive impact of a centralization of the global management of the Interplak business during 1995, as well as lower advertising, selling and research and development expenses. In 1994, higher levels of expenses were incurred in support of the development and launch of the new technology power toothbrushes. 1994 Versus 1993 Within the personal health sector, 1994 revenues for lens care products advanced 10% from 1993, based primarily on higher unit shipments. Continued strong demand for the Company's ReNu, Boston and Bausch & Lomb lines of lens care solutions was reflected in improved results worldwide. Results also benefited from a full year of sales of Curel and Soft Sense skin care products. Additionally, over-the-counter medications in Europe achieved 18% growth as a result of successful new product introductions. Worldwide oral care revenues declined 28% from 1993. Increased competition in the U.S. market led to price reductions and lost market share for the Interplak line of power toothbrushes. Revenues for the Company's Clear Choice mouthwash declined from 1993 based on heightened competition and a change in business strategy. Medical sector revenues increased 7% from 1993. Worldwide ophthalmic pharmaceutical revenues improved 18%, led by results for products in the U.S., including Tobramycin and Levobunolol. Growth was also evidenced in Europe, indicating a stabilization of the German market following regulatory changes made in 1993. Medical sector results further benefited from a full year's sales of Steri-Oss dental implants and Miracle-Ear hearing aids, both acquired in 1993. However, overall sales levels for hearing aids were disappointing, consistent with industry trends in response to FTC and FDA initiatives. The Company took several actions in 1994 to address these concerns, and fourth quarter sales momentum improved as consumers responded positively to Bausch & Lomb Incorporated and Consolidated Subsidiaries 31 Financial Review - - -------------------------------------------------------------------------------- advertising for the Mirage hearing aid. Sales of disposable and planned replacement lenses advanced 6% over 1993, reflecting improvement in non-U.S. markets. The Company's overall share of the highly competitive U.S. market for these lens products is estimated to have remained even with the prior year. The U.S. launch of the Occasions multi-focal lens in 1993 proved to be unsuccessful, as practitioner fit rates were lower than expected. Returns of this product, net of recorded reserves, exceeded shipments in 1994. Revenues for the SeeQuence 2 lens showed good improvement. Sales of disposable and planned replacement lenses outside the U.S., particularly in the Asia-Pacific region and Europe, increased more than 50% over 1993. Traditional lens sales decreased moderately from 1993 reflecting weakened economic conditions in key Latin American markets and a continuing shift in consumer demand from traditional lenses toward disposable and planned replacement lenses. Additionally, in 1994 the Company agreed on a one-time basis to accept returns of traditional contact lenses, primarily consigned product from an unsuccessful 1993 fourth quarter program, and to provide price adjustments to distributors. Modest gains in the biomedical sector reflected the favorable effect of foreign currency rate fluctuations on the results of non-U.S. operations, increased shipments of specific pathogen-free eggs and incremental revenues from a line of diagnostic products acquired in the 1994 first quarter. Reported healthcare segment earnings of $92 million in 1994 declined $101 million or 52% from 1993. On a comparable basis, healthcare segment earnings in 1994 declined $42 million or 20% from 1993. 1994 results include global operating losses for contact lenses, reflecting the costs of efforts in the U.S. to reduce levels of contact lens inventories at distributors, unfavorable manufacturing variances associated with the resulting lower manufacturing volumes, as well as repackaging and obsolescence provisions recorded for product returns from an unsuccessful fourth quarter 1993 marketing program. In addition, this business continued to experience a shift in consumer demand toward lower margin disposable and planned replacement products. Results also included the effect of returns of Occasions multi-focal lenses and costs for strategic investment in new technology in the U.S. and Ireland required to manufacture low cost, high quality products in volumes that will allow this business to become profitable in the future. Operating losses for oral care products reflected the impact of reduced pricing to meet competition and incremental support for the launch of new technology products. Operating losses of $12 million were incurred in the hearing care business in 1994 based on reduced sales levels and investments to restore consumer confidence in this product category and to introduce new products and consumer assurance programs. These actions followed heightened regulatory oversight of the industry by the FTC and FDA. Results also included the cost of expanded support for Miracle-Ear's franchised dealers. Positive factors in healthcare segment earnings performance in 1994 included increased demand for higher margin lens care products, improved profitability for pharmaceuticals, including the savings realized from a successful restructuring of U.S. operations, and gains in demand for dental implants. Optics Segment Results 1995 Versus 1994 Reported optics segment revenues of $573 million declined $69 million or 11% from 1994. Comparable optics segment revenues grew $23 million or 4% in 1995 to $555 million as compared with 1994. Almost 15% of sunglass revenues resulted from new products, including Orbs, Predator, Side Street, Killer Loop Activ and new offerings in the Revo Shapes and Traveler collections. Sales of these products more than offset a decline in demand for certain Ray-Ban sunglasses with more traditional designs. These positive results were attained during a period in which this business was actively engaged in programs to develop flexible manufacturing processes for its new products. As a result, the Company was not able to fully meet the demand created by strong global consumer acceptance of new designs. Many of these new sunglass products are in the fashion and sport segments, areas where the Company is expanding its market presence. Products in these 32 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- segments are subject, in part, to the ability to anticipate and satisfy changes in consumer preferences and are generally characterized by shorter life cycles. Being successful in these categories generally requires innovative design and marketing expertise, combined with flexible product delivery capabilities. Reported optics segment earnings of $42 million were $30 million or 41% lower than the 1994 amount of $72 million. Reported optics segment margins were 7.4%, 11.2% and 12.0% in 1995, 1994 and 1993, respectively. On a comparable basis, optics segment earnings of $59 million in 1995 were $2 million or 3% lower than comparable 1994 results, and optics segment margins were 10.7% in 1995, 11.6% in 1994 and 18.6% in 1993. These results reflect the shift in product mix toward lower-margin fashion-oriented new sunglass styles. Additionally, advertising expenses increased in response to the Company's intensified efforts to build consumer awareness of Ray-Ban and other brand names around the world. These margins are expected to improve in the short term as a result of new manufacturing strategies and actions to reduce overhead and administrative costs. Segment results also include earnings declines in the thin film technology business, which resulted from increased competition and lower sales to European customers. 1994 Versus 1993 Reported optics segment revenues of $643 million in 1994 declined $18 million or 3% from 1993. On a comparable basis, 1994 optics segment revenues declined $30 million or 5% to $532 million. These results reflected actions to normalize sunglass distributor inventory levels globally. Sales were also hindered by a general trend toward lower retail and distributor inventories in the wake of a tightening of the Company's worldwide marketing and sales policies. In the U.S., these trends were partially offset by incremental results from the first quarter acquisition of the Revo line of premium-priced sunglasses. Sales of thin film coating products and services advanced 15% as a result of higher shipments to Europe, which accounts for approximately half of this business. Reported optics segment earnings of $72 million declined $8 million or 9% from 1993. On a comparable basis, optics segment earnings of $62 million in 1994 were $43 million or 41% below 1993 levels. 1994 results included the impact of sales declines and lower manufacturing volumes on the worldwide sunglass business as well as actions taken to realign or discontinue distributor relationships in Asia. Partially offsetting these negative factors were incremental earnings from the acquisition of the Revo sunglass line. Costs And Expenses On a comparable basis, the ratio of cost of products sold to sales was 44% in 1995, compared to 48% in 1994 and 45% in 1993. The improvement is due to shifts in sales mix toward higher-margin hearing aids and pharmaceutical products as well as the divestiture of the sports optics business and the favorable impact of foreign currency exchange rate changes. These trends more than offset the impact of increased demand for lower-margin planned replacement lenses and new sunglass products. The unfavorable ratio in 1994 resulted from product mix, including lower sales of traditional contact lenses and Ray-Ban sunglasses, which have historically contributed a higher return on sales, and the effect of lower manufacturing volumes on contact lens and sunglass product costs. These business developments more than offset the increase in sales of higher-margin lens care and skin care products and the improvement in margins for U.S. pharmaceutical operations resulting from the success of new product introductions and restructuring actions. Comparable selling, administrative and general expenses, including corporate administration costs, were 40% of sales in 1995, 38% of sales in 1994 and 37% of sales in 1993. Advertising and promotion expenses included in this total were 18%, 17% and 16% of sales in 1995, 1994 and 1993, respectively. The increases reflect promotional support for the launch and test marketing of several new products as well as a refocusing of advertising toward consumers. Higher levels of advertising and promotion spending in 1995 included additional support for Ray-Ban sunglasses in key markets, skin care product advertising and the establishment of a business development marketing program directed toward contact lens patients. Corporate administration expenses totaled $58 million in 1995, compared to $44 million in 1994 and $47 million in 1993. This represented 3.0% of sales Bausch & Lomb Incorporated and Consolidated Subsidiaries 33 Financial Review - - -------------------------------------------------------------------------------- in 1995, 2.3% in 1994 and 2.5% in 1993. 1995 corporate administration expenses included a $7 million pre-tax charge in December 1995 for retirement and other benefits for the Company's former Chief Executive Officer. Excluding this charge, 1995 corporate administration expenses would have been 2.6% of sales. Research and development expenditures totaled $66 million in 1995 compared to $60 million in 1994, an increase of 9%. These costs were $58 million in 1993. Research and development costs have risen at a compound rate of 6% over the past five years. The Company continues to invest in programs to enhance its technical leadership in all of its key businesses. The majority of these expenditures in 1995 related to the development of contact lens materials, lens care solutions, ophthalmic pharmaceuticals and sunglasses. Operating Results By Geographic Region The Company's reported results by geographic region for all three periods were affected by the significant events described previously. A summary of sales and earnings by geographic region and comparable results which exclude the divested sports optics business and the costs associated with the restructuring and goodwill impairment charges are summarized below:
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------- Comparable Comparable Comparable Dollar Amounts In Millions As Reported Basis As Reported Basis As Reported Basis - - ------------------------------------------------------------------------------------------------------------------------- NET SALES: Europe, Middle East & Africa $471.0 $469.9 $414.2 $410.5 $396.9 $393.5 Asia-Pacific 345.3 345.0 303.7 302.2 292.2 290.4 Canada & Latin America 119.0 116.2 129.5 117.2 128.3 117.1 U.S. 997.6 983.5 1,045.3 951.8 1,012.7 929.7 - - ------------------------------------------------------------------------------------------------------------------------- Total $1,932.9 $1,914.6 $1,892.7 $1,781.7 $1,830.1 $1,730.7 ========================================================================================================================= BUSINESS SEGMENT EARNINGS: Europe, Middle East & Africa $93.1 $96.6 $91.9 $91.6 $90.0 $106.3 Asia-Pacific 43.6 43.7 29.9 29.8 17.7 22.2 Canada & Latin America (2.0) (1.7) 6.5 5.3 10.2 13.3 U.S. 136.8 158.0 35.3 101.5 154.0 170.9 - - ------------------------------------------------------------------------------------------------------------------------- Total $271.5 $296.6 $163.6 $228.2 $271.9 $312.7 =========================================================================================================================
The following discussion addresses trends noted on a comparable basis. Sales in markets outside the U.S. totaled $931 million in 1995, an increase of $101 million or 12% from 1994, and represented 49% of consolidated revenues, compared to 47% in 1994 and 46% in 1993. European revenues increased 14% and benefited from the favorable impact of currency movements, particularly in Germany. This progress also reflected improved demand for the Company's sunglasses, over-the-counter medications, planned replacement lenses and lens care products. Sales advanced 14% in the Asia-Pacific region, primarily due to results in Japan, attributable to favorable currency exchange rate fluctuations, as well as increased sales of sunglasses, contact lenses and lens care products. Elsewhere in that region, revenues were essentially even with 1994, as sales increases for planned replacement lenses and lens care solutions and favorable foreign currency rate fluctuations were offset by sales declines for sunglasses. Revenues decreased slightly in the Canada and Latin America region. Sales shortfalls in Mexico more than offset improvement in Brazil and Canada, where sales improved due to results for sunglasses and contact lenses. 34 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Business segment earnings in 1995 in markets outside the U.S. were $139 million, an increase of $12 million or 9% over 1994. This represented 47% of total business segment earnings in 1995, 56% in 1994 and 45% in 1993. The increase over comparable basis 1994 results reflected improvements in Japan resulting from sales increases for sunglasses and contact lenses, partially offset by earnings shortfalls elsewhere in the Asia-Pacific region for traditional contact lenses and sunglasses. Sales outside the U.S. totaled $830 million in 1994, an increase of $29 million or 4% from 1993. European revenues improved $17 million or 4%, reflecting improved results for lens care solutions and planned replacement lenses overall and for over-the-counter medications and prescription pharmaceutical products in Germany. Sales of sunglass products declined from 1993 based on actions to reduce distributor inventory levels as well as increased competition in certain markets. In the Asia-Pacific region, sales improved $12 million, led by results in Japan, due to increased demand for planned replacement lenses and favorable exchange rate changes which more than offset weakened consumer spending. Elsewhere in that region, sales improvement was attributable to increased shipments of planned replacement lenses. Revenues in Canada and Latin America were relatively even with the prior year. Business segment earnings in markets outside the U.S. in 1994 declined $15 million or 11% from 1993, reflecting the impact of lower sunglass revenues, due to efforts to balance distributor inventories, as well as the cost of excess capacity for the manufacture of planned replacement contact lenses in Ireland, offset by gains for lens care solutions and pharmaceutical products. On a year-over-year basis, changes in exchange rates had virtually no impact on earnings in U.S. dollars. U.S. sales totaled $984 million in 1995, an increase of $32 million or 3% from 1994. Revenue increases for planned replacement lenses, sunglasses, pharmaceuticals and hearing aids were reduced by shortfalls for soft lens care solutions. The improvement reflected the impact of new product introductions as well as a closer alignment of the Company's sales to consumer purchasing patterns, particularly in the sunglass business. U.S. business segment earnings of $158 million in 1995 increased $56 million or 56% over 1994. This progress was led by improved results for sunglass, hearing aid, planned replacement lens and pharmaceutical products. Improvement was also noted for the U.S. oral care business, which benefited from lower operating expenses, including a consolidation of administrative functions. These positive factors more than offset earnings shortfalls for soft lens solutions resulting from lower sales levels and increased spending to support ReNu products in the current year. U.S. revenues of $952 million in 1994 increased $22 million or 2% from 1993. The full year impact of 1993 acquisitions in the skin care, hearing aid and dental implant businesses and significant gains in revenues for lens care products were the primary factors. In addition, U.S. pharmaceutical revenues advanced 19%, led by incremental sales of Tobramycin and Levobunolol. Offsetting these increases, sunglass results were down slightly as incremental sales from the acquisition of Revo were more than offset by the effect of a tightening of marketing and sales policies. Oral care revenues declined as a result of price reductions to address increased competition and sell through older technology product. U.S. business segment earnings in 1994 decreased $69 million or 41% from 1993. These results reflected the impact on operating margins of actions taken to normalize U.S. contact lens and sunglass distributor inventories and costs for the launch of new technology Interplak products and 1994 investments in the U.S. hearing care business. Offsetting these factors were gains for lens care solutions, eye care products and dental implants, as well as incremental earnings contributed by the 1994 acquisition of the Revo product line. Other Income And Expenses Income from investments was $39 million in 1995, $35 million in 1994 and $14 million in 1993. In 1995, the effect of higher investment levels and interest rates was reduced by lower income generated by an interest rate swap associated with the Wilmington Partners L.P. transaction. The 1994 increase over 1993 was attributable primarily to discontinuing a practice of using intercompany loans to reduce U.S. short-term borrowings over limited periods. The increase was also due to income generated from the aforementioned interest rate swap and to rising interest rates in 1994. Bausch & Lomb Incorporated and Consolidated Subsidiaries 35 Financial Review - - -------------------------------------------------------------------------------- Interest expense was $46 million in 1995, $41 million in 1994 and $34 million in 1993. The 1995 increase reflects higher average U.S. interest rates, despite a modest decrease in average outstanding debt levels. The higher expense in 1994 reflected the full-year impact of acquisition-related borrowings incurred in 1993, discontinuing the practice of using intercompany loans to reduce short-term borrowings over limited periods and increases in interest rates. The Company pursues a neutral strategy with respect to interest rate movements. Its policy is to maintain, within reasonable parameters, a natural balance between floating rate investments, which are predominantly held outside of the U.S., and floating rate debt, which is predominantly U.S. obligations. To the extent this natural hedge position becomes unbalanced, the Company may enter into interest rate swap agreements or undertake long-term fixed rate borrowings, the proceeds from which may repay short-term debt. As a result of this practice, the Company's exposure to the normal rise and fall of U.S. interest rates is mitigated. The Company has classified its interest rate swap agreements as held for purposes other than trading. Net payments or receipts under the interest rate swap agreements are accrued and generally recorded as adjustments to interest expense. See Note 9 -- Debt, Note 14 -- Fair Value Of Financial Instruments and Note 15 -- Derivative Financial Instruments for a further discussion of these transactions. The Company does not engage in foreign currency speculation. Its objective is to effectively hedge 100% of identified foreign currency transaction exposures on an after-tax basis to minimize the impact of foreign exchange rate movements on its operating results. It does not typically hedge exposures arising in countries with hyperinflationary economies, restrictive exchange controls or undeveloped currency markets due either to the cost of hedging or the lack of viable hedging instruments. The estimated notional amount of exposures that remained unhedged at December 30, 1995 totaled $5.2 million. The Company also hedges certain firm commitments for the purchase of inventory and its net investments in certain subsidiaries. The Company does not typically hedge to protect the translated operating results of non-U.S. operations or economic exposures for which hedge contract gains or losses would be recognized in the current period's earnings. Therefore, the Company does not view itself as sustaining market risk from its use of hedging instruments. The following table summarizes the pre-tax components of foreign currency gains and losses for the last three years: Dollar Amounts In Millions 1995 1994 1993 - - ------------------------------------------------------------------------------ Transaction loss (gain), net $1.8 $(15.7) $(22.5) Translation loss 4.4 13.1 11.4 - - ------------------------------------------------------------------------------ Loss (gain) from foreign currency, net $ 6.2 $(2.6) $(11.1) ================================================================================ The forward premiums or discounts realized on hedge contracts are substantially based on interest rate differentials between the countries whose currencies are being traded. The decline in net transaction gains in 1995 and 1994 compared to earlier periods resulted from lower discount income on Irish pound contracts used to hedge transaction exposures and the equity investment in two subsidiaries. The Company records translation gains and losses as adjustments to shareholders' equity. Generally, it does not hedge the translation of non-U.S. assets and liabilities, except in the case of its equity investment in certain subsidiaries. However, translation adjustments relating to operations in countries with highly inflationary economies have been recorded in net earnings, along with all transaction gains and losses. Translation losses decreased in 1995 due to improved economic stability in Brazil. Translation losses increased in 1994, primarily due to higher inflation and devaluations in Turkey and Venezuela. During the 1995 second quarter, the Company announced the sale of its Sports Optics Division and recorded a pre-tax gain of $36 million. 36 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- The Company's current assessment of certain of the legal matters described in Note 16 -- Litigation has permitted management to estimate the likely costs and expenses to be incurred in connection with the actions. Accordingly, in the 1995 second and fourth quarters the Company recorded litigation provisions of $16 million and $6 million, respectively. Minority interest expense includes distributions to the outside investor in Wilmington Partners L.P., formed in December 1993. Income Taxes The Company's reported tax rate for 1995 was 36.9%. The tax rate for 1994 was 52.6%. Excluding the goodwill impairment charge for which there was no associated tax benefit, the 1994 reported rate would have been 32.0%. The tax rate for 1993 was 33.5%. The higher 1995 rate reflects shifts in geographic earnings and the inability to fully utilize foreign tax credits in the current year. In 1994 and 1993 the Company recognized the positive impact of German and U.S. statutory tax rate changes on its deferred tax benefit in the years in which the changes were enacted. This was not material to earnings results in either period. Net Earnings And Earnings Per Share Net earnings were $112 million or $1.94 per share in 1995, compared to $31 million or $0.52 per share in 1994 and $139 million or $2.31 per share in 1993. Excluding the gain on sale of the Sports Optics Division of $21 million or $0.36 per share after taxes and restructuring expense of $17 million or $0.30 after taxes, 1995 net earnings would have been $109 million or $1.88 per share, compared to comparable results of $106 million or $1.78 per share in 1994 and $175 million or $2.92 per share in 1993, the latter amounts excluding goodwill impairment and restructuring charges in those years. Litigation provisions further reduced 1995 earnings by $14 million or $0.24 per share after taxes and expenses related to retirement and benefit costs for the Company's former Chief Executive Officer reduced earnings by $4 million or $0.08 per share after taxes. Excluding these results from comparisons, 1995 earnings would have been $127 million or $2.20 per share, an increase of $21 million or $0.42 per share from 1994. Fourth Quarter Operating Results In the 1995 fourth quarter, reported sales were $455 million versus $482 million in 1994. Reported operating earnings were $13 million as compared to a loss of $46 million in 1994. Comparable basis sales were $455 million, an increase of $9 million or 2% over comparable 1994 results. Comparable basis operating earnings were $40 million, an increase of $15 million or 62% over 1994. These results reflect improved performance for sunglasses and planned replacement contact lenses, which offset sales and earnings shortfalls for the global oral care and U.S. lens care businesses. In the 1994 fourth quarter, reported sales were $482 million versus $453 million in 1993. Reported operating losses of $46 million were incurred compared to earnings of $12 million in 1993. Comparable basis sales totaled $446 million, an increase of $24 million or 6% from the corresponding 1993 period. Operating earnings of $25 million were $34 million or 58% below 1993. Earnings results in 1994 included costs associated with efforts to normalize contact lens and sunglass distributor inventories and the corresponding related impact of lower worldwide manufacturing volumes on the cost of contact lenses and sunglasses, the effect of reduced pricing on margins for older technology Interplak products and operating losses for hearing care products. LIQUIDITY AND FINANCIAL RESOURCES The Company evaluates its liquidity from several perspectives, including its ability to generate earnings and positive cash flows, its financial position, its access to financial markets and the adequacy of working capital levels. The Company has a stated goal to maximize free cash flow, which is defined as cash generated before the payment of dividends, the borrowing or repayment of debt, stock repurchases and the acquisition or divestiture of businesses. Free cash flow for the year ended December 30, 1995 totaled $189 million. For the year ended December 30, 1994 free cash flow totaled $188 million. This strong performance was primarily attributable to the Company's successful management of working capital levels. Bausch & Lomb Incorporated and Consolidated Subsidiaries 37 Financial Review - - -------------------------------------------------------------------------------- The Company historically maintained a relatively low level of net debt, or borrowings less cash, cash equivalents and short-term investments. Because of the transfer of liquid funds to long-term investments in both 1995 and 1994, net debt is significantly higher than in the recent past. Based on the expected success of efforts to generate free cash flow to support operations, management does not anticipate a need for significant new debt financing beyond that to refinance existing short-term debt and finance new acquisitions. Cash Flows From Operating Activities Cash provided by operating activities totaled $278 million in 1995, an increase of $15 million from the prior year. This improvement was primarily attributable to cash realized from the net settlement of foreign currency hedge contracts in 1995 and the comparison against the cash used to complete restructuring actions in 1994. These factors were moderated by the positive cash flow in 1994 generated by collections on receivables. Successful asset management efforts in 1994 were evident as net earnings adjusted for goodwill impairment and other non-cash items including depreciation, amortization and deferred taxes of $242 million was fully realized in the positive cash flow from operations totaling $263 million, an improvement of $121 million or 85% over 1993. This success was primarily the result of lower net receivables, due to improved collections, reduced customer delinquencies and tightened credit terms. This improvement was moderated by lower accrued liabilities, which included charges against the 1993 restructuring accrual. Taxes payable also decreased as a result of lower earnings and the payments of 1993 tax liabilities. Cash Flows From Investing Activities Cash used in investing activities was reduced $387 million from 1994 to $165 million. Purchases of property, plant and equipment totaled $95 million. Major projects in 1995 included new cast molding capacity for contact lenses and manufacturing improvements for sunglasses in the U.S., Europe and Asia-Pacific regions. Other investing activities in 1995 included approximately $136 million invested in securities issued by a subsidiary of a triple-A rated financial institution more fully described in Note 7 -- Other Investments and amounts received from the divestiture of the Company's sports optics business. Cash used in investing activities in 1994 increased $164 million from 1993 to $552 million. In the 1994 third quarter the Company's subsidiary, Bausch & Lomb Ireland, invested $425 million in securities issued by a wholly-owned subsidiary of a triple-A rated financial institution more fully described in Note 7 -- Other Investments. Purchases of property, plant and equipment totaled $85 million in 1994, a decrease of $22 million from 1993, reflecting stringent expenditure controls. Major projects in the U.S. and Europe included new manufacturing technology for contact lenses, added capacity for the production of lens care solutions and improvements in sunglass manufacturing. Other investing activities also included the acquisition of the assets of Revo, Inc. Cash Flows From Financing Activities Approximately $149 million in cash was used in financing activities in 1995, including repurchases of the Company's Common shares, the payment of dividends and a net reduction in debt. The repurchase of an additional 2,000,000 Common shares was authorized by the Company's board of directors in 1995. At December 30, 1995, 1,836,200 shares remain available for repurchase under the authorization terms. The amount of repurchases in any year is based on market conditions and cash flows. In 1995, cash proceeds from the sale of the Sports Optics Division were used primarily for the repurchase of Common shares. Net cash used in financing activities totaled $47 million in 1994. Funds were used for the payment of dividends and repurchases of the Company's Common shares. The net increase in debt represented additional U.S. short-term borrowings. 38 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Financial Position The Company's objective of maximizing its return on shareholders' equity requires the cost of capital to be minimized. The effective use of debt financing has lowered the Company's cost of capital and contributed to its return to shareholders. In total, short- and long-term borrowings decreased by $16 million to $574 million in 1995. The ratio of total debt to equity stood at 62% and 65% at year-end 1995 and 1994, respectively. Cash and investments totaled $195 million in 1995 and $233 million in 1994. Cash equivalents consist primarily of U.S. and Eurodollar time deposits with maturities of less than three months. Access To Financial Markets Bausch & Lomb's reputation, coupled with its financial position and cash flows, assures access to financing in markets around the world. The Company's commercial paper has been rated A-2 by Standard & Poors and P-1 by Moody's Investor Services. Its long-term debt is rated A and A-2 by Standard & Poors and Moody's, respectively. This enables the Company to raise funds at a low effective cost. To support its liquidity requirements, the Company maintains U.S. revolving credit agreements, typically with 364-day credit terms totaling $290 million. The interest rate under the agreements is at the prime rate, or, at the Company's option, at a mutually acceptable market rate. No debt was outstanding under these agreements at December 30, 1995, nor were there any borrowings outstanding under the Company's $300 million medium-term note program. In addition, the Company maintains bank lines of credit for its financing requirements. At year end, unused U.S. bank lines of credit amounted to approximately $34 million. 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 $71 million at year-end 1995 compared to $277 million in the prior year. The decrease is primarily due to the investment in securities issued by a subsidiary of a triple-A rated financial institution described previously. The current ratio at year-end 1995 was 1.1 compared to 1.4 in 1994. OUTLOOK Bausch & Lomb expects its sales and operating earnings performance in 1996 to contribute toward its stated multi-year objective of annualized revenues and earnings growth in the range of 10%. Sales in the worldwide sunglass business are expected to benefit from the increasing contribution of new products like the successful Orbs, Predator, Side Street and Killer Loop Street Sport products introduced to global markets in 1995. Actions to address product supply issues which constrained performance in 1995 are substantially complete and should enhance the Company's ability to effectively respond to changes in consumer preference. Revenues are expected to also benefit from the 1996 acquisition of Arnet Optic Illusions, Inc. The Arnette line, with its distinctive high-performance designs, enhances the Company's position in the sport market through its strong position in niches such as surfing, snowboarding, skateboarding and mountain biking. The Company's Revo and Liz Claiborne lines are being expanded into global markets, particularly emphasizing Europe in 1996. In addition, the Company has announced actions to centralize certain administrative functions in its U.S. commercial sunglass operations and to eliminate excess manufacturing capacity and improve customer responsiveness by the development of global product delivery centers in the U.S., Ireland and Hong Kong. While the costs of implementing these actions will offset any savings in 1996, they are expected to make an important contribution to worldwide earnings performance in 1997 and beyond. 1996 will be an important year for the Company's global contact lens business. Intense competition in the planned replacement and disposable lens segments of the market will continue. Expanded distribution for the recently introduced SofLens66 planned replacement product and finalization of a new manufacturing technology jointly developed with IBM should enhance the Company's performance in the important U.S. market in 1996. In addition, the Company has completed the acquisition of Award plc, manufacturer of a high water daily disposable lens using a patented cast mold manufacturing technology and highly efficient distribution process. This acquisition should enhance the Company's competitive position in Europe. In 1996 the Company will also apply for FDA approval to market this lens in the U.S. As market demand continues Bausch & Lomb Incorporated and Consolidated Subsidiaries 39 Financial Review - - -------------------------------------------------------------------------------- to shift toward planned replacement and disposable lens products, the Company will increasingly manage its traditional lens products strategically to enhance total return. As part of this transition the Company will undertake the rationalization of its current product offerings. Some costs to eliminate product lines will be incurred in 1996. However, total return on lens product sales is expected to improve. The lens care business will continue to respond to challenges in the important U.S. market as lens wearers convert to disposable and planned replacement lenses. While growth in the overall lens care market in the U.S. is not expected, the chemical disinfectant segment, in which ReNu Multi-Purpose Solution is the market leader, is still growing. There will be continued pressure on market share from both branded and private label competition, but the Company's success in maintaining its share in 1995 demonstrates the strength of this franchise. Outside the U.S., the Company has significant opportunities for growth, both by expanding into new markets and utilizing partnerships with practitioners in existing markets to develop higher levels of compliance. During 1996, the Company expects to introduce additional hydrogen peroxide-based products into the European market. The RGP solutions category, strengthened by the new Boston Advance Comfort Formula solution and the one-step Boston Simplicity successfully introduced in 1995, should benefit from expanded consumer acceptance. The overall earnings return on sales of lens care products is expected to remain high, despite increased investment in advertising and promotions required as competition intensifies. A continuation of a good rate of growth for prescription pharmaceuticals is anticipated in 1996. Through strategic partnerships for licensing products and technologies, the Company will seek to improve its balance in the U.S. market between a successful portfolio of generic pharmaceuticals and the stable earnings associated with successful ophthalmic proprietary products. The Company expects to introduce a number of new products into the U.S. market in 1996. Outside the U.S., the Company expects to continue to expand products manufactured by its Dr. Mann Pharma subsidiary into new markets. By focusing on the synergies in its worldwide pharmaceutical base, the Company also expects to complete actions to enhance the earnings return on sales. A steady stream of new product offerings in the skin care business, currently focused on the U.S. market, and expansion of Dr. Mann Pharma's current product offerings in Europe should improve results for the Company's over-the-counter business. Biomedical sector results are expected to grow modestly as a result of newly acquired product lines in the biotechnology area. Earnings performance should also benefit from the progress of announced efforts to reduce annualized costs by $50 million by 1998. Actions will primarily include a reduction in corporate administration costs, principally headcount, and the consolidation of administrative functions around the world. The cost of severance and asset write-offs for projects which had been approved by management prior to year end were reflected in the 1995 restructuring reserve. Additional expenses for these projects and new actions are expected to be incurred in 1996. In addition, the Company regularly reevaluates its existing portfolio of businesses and pursues opportunities to maximize shareholder return. This led to the sale of the Sports Optics Division in 1995 and the announcement in 1996 that the Company would explore the sale of its Oral Care Division which markets the Interplak line of products. Other expenses are expected to be comparable to 1995. Interest expense is contingent on the level of cash flow generated from operations and interest rates. Currency gains and losses are also dependent on trends in interest rates, primarily in Ireland and the U.S. and on exchange rate changes in certain hyperinflationary economies, which the Company is unable to predict. Finally, the Company again expects to generate positive cash flow. Free cash flow is expected to benefit from growth in net earnings and ongoing asset management efforts. Capital expenditures will total approximately $130 million. Major projects will include investments in improved manufacturing and systems technologies for planned replacement contact lenses, sunglasses, lens care solutions and pharmaceuticals. In addition, the Company is expected to obtain long-term financing by issuing medium-term notes under its current shelf registration. 40 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- OTHER INFORMATION "Safe Harbor" Statement Under The Private Securities Litigation Reform Act Of 1995 The statements in this financial review which are not historical facts are forward looking statements that involve risks and uncertainties. This includes but is not limited to risks associated with product demand and consumer acceptance; the development of new manufacturing technologies including the contact lens and sunglass initiatives described earlier; the effect of economic conditions and changes in interest and exchange rates; the impact of competitive products and pricing, product development and regulatory approval risks, particularly for personal health and medical sector products; capacity, distribution and supply constraints or difficulties; the results of financing efforts; the effect of the Company's accounting policies and other risks detailed in this report and other public filings. Dividends The annual dividend declared on Common stock was $1.01 per share in 1995, $0.955 per share in 1994 and $0.88 per share in 1993. Quarterly dividends declared on Common stock were raised 6% to $0.26 per share in July 1995 and were raised 11% to $0.245 per share in March 1994 compared to $0.22 per share for all of 1993. These increases reflected the Company's desire to increase its dividend on an annual basis while maintaining a payout rate of between 30% to 35% of the previous year's earnings before non-recurring charges. Future dividend increases are not certain. Return On Equity And Capital Return on average shareholders' equity was 11.9% in 1995, compared with 3.2% in 1994 and 15.5% in 1993. These results include the impact of non-recurring charges. Excluding these charges, return on equity would have been 11.7% in 1995, 11.0% in 1994 and 19.5% in 1993. The improvement in 1995 reflects improved operating performance primarily in the oral care, skin care, contact lens, hearing aid and prescription pharmaceutical businesses. The decrease in 1994 from 1993 reflected lower earnings performance in the contact lens, sunglass, hearing aid and oral care businesses. Further excluding the cumulative translation adjustment, return on equity for 1995 was 13.1%, compared with 3.4% for 1994 and 15.9% for 1993. Return on average capital employed was 9.3% for 1995, 3.8% for 1994 and 11.0% for 1993. Again, excluding non-recurring charges, return on capital would have been 9.6% in 1995, 8.4% in 1994 and 13.4% in 1993. The change is due to a modest improvement in earnings. Environment The Company believes it is in compliance in all material respects with applicable environmental laws and regulations. The Company is presently involved in remediation efforts at certain locations, some of which are Company owned. At all such locations, the Company believes such efforts will not have a materially adverse effect on its results of operations or financial position. Bausch & Lomb Incorporated and Consolidated Subsidiaries 41 Financial Review - - -------------------------------------------------------------------------------- Quarterly Results The following table presents net sales, gross profit (net sales less cost of products sold), net earnings (loss) and net earnings (loss) per share for each quarter during the past three years:
Net Earnings Net Gross Net Earnings (Loss) Dollar Amounts In Thousands (Except Per Share Data) Sales Profit (Loss) Per Share - - ------------------------------------------------------------------------------------------------------------------- 1995 First $465,601 $247,236 $20,284 $0.34 Second 535,459 301,370 51,589(1) 0.89(1) Third 476,757 271,262 43,514 0.75 Fourth 455,066 253,031 (3,365)(2) (0.04)(2) - - -------------------------------------------------------------------------------------------------------------------- Total $1,932,883 $1,072,899 $112,022 $1.94 ==================================================================================================================== 1994 First $439,388 $234,727 $35,924 $0.60 Second 485,625 262,385 33,898 0.57 Third 486,059 238,040 23,377 0.39 Fourth 481,614 244,255 (62,076)(3) (1.04)(3) - - -------------------------------------------------------------------------------------------------------------------- Total $1,892,686 $979,407 $31,123 $0.52 ==================================================================================================================== 1993 First $407,605 $219,774 $32,851 $0.54 Second 479,429 269,645 47,028 0.78 Third 490,136 273,484 52,022 0.87 Fourth 452,880 238,264 7,001(4) 0.12(4) - - -------------------------------------------------------------------------------------------------------------------- Total $1,830,050 $1,001,167 $138,902 $2.31 ====================================================================================================================
(1)Includes the after-tax gain on sale of the Sports Optics Division of $20.8 million or $0.36 per share and the after-tax effect of a litigation provision of $10.7 million or $0.18 per share. (2)Includes the after-tax effect of restructuring charges of $17.4 million or $0.30 per share, the after-tax effect of a litigation provision of $3.6 million or $0.06 per share and the after-tax effect of a CEO retirement charge of $4.4 million or $0.08 per share. (3)Includes goodwill impairment charge, with no associated tax benefit, of $75.0 million or $1.26 per share. (4)Includes the after-tax effect of restructuring charges of $36.5 million or $0.61 per share. Quarterly Stock Prices Bausch & Lomb Common stock is listed on the New York Stock Exchange and is traded under the symbol BOL. The following table shows the price range of the Common stock for each quarter for the past three years:
1995 1994 1993 Price Per Share Price Per Share Price Per Share - - --------------------------------------------------------------------------------------------------------------------------------- High Low High Low High Low - - --------------------------------------------------------------------------------------------------------------------------------- First $36 1/4 $30 7/8 $53 7/8 $47 1/2 $57 1/2 $50 3/4 Second 42 1/4 35 1/4 52 37 1/8 55 3/8 47 7/8 Third 44 1/2 39 1/2 39 3/4 34 1/4 50 3/4 43 Fourth 41 1/8 32 1/4 39 3/8 30 5/8 53 1/2 45 1/8 =================================================================================================================================
42 Bausch & Lomb Incorporated and Consolidated Subsidiaries Statement of Earnings - - -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993 (Dollar Amounts In Thousands -- Except Per Share Data)
1995 1994* 1993* - - ------------------------------------------------------------------------------------------------------------------------- Net Sales $1,932,883 $1,892,686 $1,830,050 Costs And Expenses Cost of products sold 859,984 913,279 828,883 Selling, administrative and general 769,935 724,219 668,436 Research and development 65,622 60,421 57,864 Goodwill impairment charge -- 75,000 -- Restructuring charges 26,697 -- 50,000 - - ------------------------------------------------------------------------------------------------------------------------- 1,722,238 1,772,919 1,605,183 - - ------------------------------------------------------------------------------------------------------------------------- Operating Earnings 210,645 119,767 224,867 - - ------------------------------------------------------------------------------------------------------------------------- Other (Income) Expense Investment income (39,009) (35,339) (14,289) Interest expense 45,765 41,379 34,202 Loss (gain) from foreign currency, net 6,244 (2,615) (11,068) Gain on sale of Sports Optics Division (35,902) -- -- Litigation provision 21,700 -- -- - - ------------------------------------------------------------------------------------------------------------------------- (1,202) 3,425 8,845 - - ------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes And Minority Interest 211,847 116,342 216,022 Provision for income taxes 78,068 61,162 72,404 - - ------------------------------------------------------------------------------------------------------------------------- Earnings Before Minority Interest 133,779 55,180 143,618 Minority interest in subsidiaries 21,757 24,057 4,716 - - ------------------------------------------------------------------------------------------------------------------------- Net Earnings 112,022 31,123 138,902 Retained Earnings At Beginning Of Year 846,245 871,680 785,044 Cash Dividends Declared -- Common Stock, $1.01 per share for 1995 ($0.955 for 1994 and $0.88 for 1993) 58,172 56,558 52,266 - - ------------------------------------------------------------------------------------------------------------------------- Retained Earnings At End Of Year $900,095 $846,245 $871,680 - - ------------------------------------------------------------------------------------------------------------------------- Earnings Per Common Share $1.94 $0.52 $2.31 =========================================================================================================================
*Amounts have been restated for certain items as more fully described in Note 2 -Restatement Of Financial Information. SEE NOTES TO FINANCIAL STATEMENTS Bausch & Lomb Incorporated and Consolidated Subsidiaries 43 Balance Sheet - - -------------------------------------------------------------------------------- DECEMBER 30, 1995 AND DECEMBER 31, 1994 (Dollar Amounts In Thousands)
1995 1994 - - ---------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $193,814 $230,369 Short-term investments, at cost which approximates market 803 2,173 Trade receivables, less allowances of $11,232 and $16,830, respectively 250,587 271,990 Inventories, net 304,298 312,781 Deferred taxes, net 82,557 40,372 Other current assets 98,288 96,281 - - ---------------------------------------------------------------------------------------------------------------- 930,347 953,966 Property, Plant And Equipment, net 550,366 542,750 Goodwill And Other Intangibles, less accumulated amortization of $96,597 and $77,394, respectively 381,495 395,950 Other Investments 561,232 425,000 Other Assets 126,626 140,065 - - ---------------------------------------------------------------------------------------------------------------- Total Assets $2,550,066 $2,457,731 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $284,510 $252,783 Current portion of long-term debt 98,990 47,788 Accounts payable 81,927 71,718 Accrued compensation 79,767 71,742 Accrued liabilities 275,936 216,956 Federal and foreign income taxes 38,347 15,551 - - ---------------------------------------------------------------------------------------------------------------- 859,477 676,538 Long-Term Debt, less current portion 190,974 289,504 Other Long-Term Liabilities 139,925 149,094 Minority Interest 430,390 428,208 - - ---------------------------------------------------------------------------------------------------------------- Total Liabilities 1,620,766 1,543,344 - - ---------------------------------------------------------------------------------------------------------------- Shareholders' Equity 4% Cumulative Preferred stock, par value $100 per share -- -- Class A Preferred stock, par value $1 per share -- -- Common stock, par value $0.40 per share, 60,198,322 shares issued 24,079 24,079 Class B stock, par value $0.08 per share, 1,268,578 shares issued (1,072,880 shares in 1994) 101 86 Capital in excess of par value 107,788 93,849 Cumulative translation adjustment 85,122 47,609 Retained earnings 900,095 846,245 - - ---------------------------------------------------------------------------------------------------------------- 1,117,185 1,011,868 Common and Class B stock in treasury, at cost, 4,525,844 shares (2,278,745 shares in 1994) (178,730) (94,269) Unearned compensation (9,155) (3,212) - - ---------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 929,300 914,387 - - ---------------------------------------------------------------------------------------------------------------- Total Liabilities And Shareholders' Equity $2,550,066 $2,457,731 ================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS 44 Bausch & Lomb Incorporated and Consolidated Subsidiaries Statement of Cash Flows - - -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993 (Dollar Amounts In Thousands)
1995 1994* 1993* - - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $112,022 $31,123 $138,902 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 89,216 82,421 72,001 Amortization of goodwill and other intangibles 16,147 16,850 12,595 Goodwill impairment charge -- 75,000 -- (Increase) decrease in deferred taxes (44,832) 36,833 (31,626) Gain on sale of Sports Optics Division, net of taxes (20,823) -- -- Provision for litigation expense, net of taxes 14,151 -- -- Restructuring charges, net of taxes 17,353 -- 36,463 Loss on retirement of fixed assets 3,231 12,995 2,721 Exchange loss (gain) 8,160 (226) (1,240) Decrease (increase) in accounts receivable 8,556 82,434 (66,722) (Increase) decrease in inventories (18,168) 7,691 (35,103) Decrease (increase) in other current assets 17,950 5,200 (35,794) Increase (decrease) in accounts payable and accruals 34,510 (54,037) 2,803 Increase (decrease) in taxes payable 39,875 (55,767) 33,944 (Decrease) increase in other long-term liabilities (2,563) 16,602 11,315 Increase in minority interest 2,950 5,779 1,996 - - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 277,735 262,898 142,255 - - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchases of property, plant and equipment (95,481) (84,807) (107,232) Acquisition of businesses, net of cash and short-term investments acquired (1,965) (29,077) (244,197) Proceeds from sale of Sports Optics Division, net of cash and short-term investments sold and taxes 60,545 -- -- Other investments (136,021) (425,000) -- Other 8,049 (13,178) (36,138) - - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (164,873) (552,062) (387,567) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common shares (94,142) (20,581) (28,753) Exercise of stock options 5,368 8,143 5,845 Tax benefit of stock transactions with employees 667 626 1,777 Restricted stock awards 11,657 3,758 43 Net proceeds from issuance of notes payable 32,292 29,538 23,006 Proceeds from issuance of long-term debt 640 11,110 150,949 Repayment of long-term debt (47,823) (24,341) (101,407) Proceeds from formation of Wilmington Partners L.P. -- -- 400,000 Payment of dividends (57,798) (55,177) (51,112) - - ---------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (149,139) (46,924) 400,348 - - ---------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash, cash equivalents and short-term investments (1,648) 22,594 (25,773) - - ---------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash, cash equivalents and short-term investments (37,925) (313,494) 129,263 Cash, cash equivalents and short-term investments, beginning of year 232,542 546,036 416,773 - - ---------------------------------------------------------------------------------------------------------------------------------- Cash, cash equivalents and short-term investments, end of year $194,617 $232,542 $546,036 ==================================================================================================================================
*Amounts have been restated for certain items as more fully described in Note 2 -- Restatement Of Financial Information. SEE NOTES TO FINANCIAL STATEMENTS Bausch & Lomb Incorporated and Consolidated Subsidiaries 45 Notes To Financial Statements - - -------------------------------------------------------------------------------- Note 1 --- ACCOUNTING POLICIES Principles Of Consolidation The financial statements include all majority-owned U.S. and non-U.S. subsidiaries. Intercompany accounts, transactions and profits are eliminated. The fiscal year is the 52 or 53 week period ending the last Saturday in December. Certain amounts in the prior years' financial statements have been reclassified to conform with the current year's presentation. Use Of Estimates The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management with consideration given to materiality. Actual results could differ from those estimates. Cash And Cash Equivalents Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost or market, generally using the first-in, first-out (FIFO) method. However, cost is determined by using the last-in, first-out (LIFO) method for certain U.S. inventories. Property, Plant And Equipment Property, plant and equipment, including improvements that significantly add to productive capacity or extend useful life, are recorded at cost, while maintenance and repairs are expensed currently. Interest costs on significant projects constructed for the Company's own use are capitalized as part of the cost of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the Balance Sheet and any gain or loss is reflected in earnings. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 30 to 40 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the lease periods. Goodwill Goodwill is the excess of the cost of net assets acquired in business combinations over their fair value. It is amortized on a straight-line basis over periods ranging from 10 to 40 years. The Company evaluates goodwill for impairment at least annually. In completing this evaluation, the Company compares its best estimate of future cash flows, excluding interest costs, with the carrying value of goodwill. Revenue Recognition Net sales are generally recognized when products are shipped. The Company has established programs which, under specified conditions, enable customers to return product. The Company establishes liabilities for estimated returns and allowances at the time of shipment. In addition, accruals for customer discounts and rebates are recorded when revenues are recognized. Advertising Expense External costs incurred in producing media advertising are expensed the first time the advertising takes place. Promotional or advertising costs associated with customer support programs are accrued when the related revenues are recognized. Costs associated with coupons and rebates are amortized over the estimated period of benefit. Recoverability of these costs is evaluated on an ongoing basis and writedowns to net realizable value are recorded as necessary. At December 30, 1995 and December 31, 1994, $6,368,000 and $5,991,000 of deferred advertising costs were reported as other current assets. Advertising expenses of $232,473,000, $210,965,000 and $201,023,000 were included in the Company's results of operations for 1995, 1994 and 1993, respectively. Start-Up Costs One-time, non-recurring and incremental out-of-pocket expenditures directly related to and incurred during the start-up phase of major internal projects are deferred and amortized over future periods. Upon conclusion of the start-up period, these costs are amortized on a straight-line basis over periods of no more than three years. Recoverability of these costs is assessed on an ongoing basis and writedowns to net realizable value are recorded as necessary. 46 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- At December 30, 1995 and December 31, 1994, $11,072,000 and $13,730,000 of start-up costs were reported as other assets. Investments In Debt And Equity Securities Certain of the Company's other investments are classified as available-for-sale under the terms of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", and accordingly, any unrealized holding gains and losses, net of taxes, are excluded from income and recognized as a separate component of shareholders' equity until realized. Fair value of the securities is determined based on market prices or using discounted cash flows and investment risk. Impairment Of Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company will adopt this Standard during the first quarter of 1996. Such adoption is not expected to have a material effect on the Company's financial position or results of operations. Foreign Currency Translation Assets and liabilities of certain non-U.S. subsidiaries are translated at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a currency component in shareholders' equity. Financial results of non-U.S. subsidiaries in countries with highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. Foreign Exchange And Interest Rate Instruments The Company enters into forward exchange and purchased foreign currency option contracts to hedge transactions and firm commitments denominated in foreign currencies and certain non-U.S. equity investments. The gains or losses on hedges of transaction exposures are included in income in the period in which the exchange rates change. Gains and losses on contracts which hedge specific foreign currency denominated commitments, primarily purchases of inventory, are deferred and recognized in the basis of the transaction when completed. Gains and losses on forward contracts hedging non-U.S. equity investments are recorded as a cumulative translation adjustment in shareholders' equity until the investment is liquidated. The cash flows related to these gains and losses are reported as cash flows from operating activities. The Company also enters into interest rate swap and cap agreements to balance its floating rate asset and liability positions. The Company amortizes premium income or expense incurred by buying or selling foreign exchange and interest rate instruments over the life of the agreements as nonoperating income or expense. Gains and losses on terminated swaps are recognized over the remaining life of the underlying obligation as an adjustment to investment income or interest expense. Income Taxes The Company accounts for certain income and expense items differently for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Earnings Per Share Net earnings per Common share are based on the weighted average number of Common and Class B shares outstanding during the year, adjusted for the assumed conversion of dilutive stock options. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options are considered to have been used to purchase Common shares at current market prices, and the resulting net additional Common shares are included in the calculation of average Common shares outstanding. Bausch & Lomb Incorporated and Consolidated Subsidiaries 47 Notes To Financial Statements - - -------------------------------------------------------------------------------- Note 2 --- RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its financial statements for the years ended December 31, 1994 and December 25, 1993. This action was taken as a result of an ongoing investigation which identified uncertainties surrounding the execution of a fourth quarter 1993 contact lens sales program and the improper recording of 1993 sunglass sales in Southeast Asia. In the fourth quarter of 1993 a marketing program was initiated to implement a business strategy to shift responsibility for the sale and distribution of a portion of the U.S. traditional contact lens business to optical distributors. Subsequently, this strategy proved unsuccessful and, in the 1994 third quarter, led to the implementation of a new pricing policy for traditional contact lenses and a decision to accept on a one-time basis returns from these distributors. The investigation of this marketing program disclosed instances where unauthorized terms may have been or were offered which were inconsistent with the stated terms and conditions of the program. The resulting uncertainties relating to the execution of this marketing program led to a decision to restate the 1993 financial statements to account for shipments under the program as consigned inventory and to record revenues when the products were sold by the distributors to their customers and to reverse the effect of subsequent product returns and pricing adjustments related to this program which had been previously recognized in 1994. The investigation of Southeast Asia sunglass sales disclosed that in certain instances distributor transactions recorded as revenues in 1993 had not actually resulted from a sale to those customers, and thus were improperly recorded. The 1993 financial statements have been restated to reverse the improperly recorded sales with a corresponding restatement of the 1994 financial statements to reverse the effect of sales returns previously recognized in that period. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments on the Company's financial results as originally reported is summarized below:
1994 1993 - - -------------------------------------------------------------------------------------------------------------- Dollar Amounts In Thousands (Except Per Share Data) As Reported As Restated As Reported As Restated - - -------------------------------------------------------------------------------------------------------------- Net Sales: Healthcare $1,227,648 $1,249,923 $1,191,467 $1,169,192 Optics 622,904 642,763 680,717 660,858 - - -------------------------------------------------------------------------------------------------------------- Total $1,850,552 $1,892,686 $1,872,184 $1,830,050 ============================================================================================================== Business Segment Earnings: Healthcare $73,466 $91,541 $210,393 $192,318 Optics 64,148 72,075 87,456 79,529 ============================================================================================================== Total $137,614 $163,616 $297,849 $271,847 ============================================================================================================== Net Earnings $13,478 $31,123 $156,547 $138,902 ============================================================================================================== Net Earnings Per Share $0.23 $0.52 $2.60 $2.31 ============================================================================================================== Retained Earnings At End of Year $846,245 $846,245 $889,325 $871,680 ==============================================================================================================
Note 3 --- RESTRUCTURING CHARGES In December 1995, the Company's board of directors approved plans to restructure portions of the sunglass, biomedical and contact lens operations as well as certain corporate administrative functions and a pre-tax restructuring charge of $26,697,000 was recorded. The major components of the restructuring charge are set forth in the table below:
Corporate Dollar Amounts In Thousands Sunglass Biomedical Contact Lens Administrative Total - - ------------------------------------------------------------------------------------------------------------------------- Employee separations $11,825 $2,048 $ -- $2,000 $15,873 Asset writedowns 3,405 2,207 3,120 1,000 9,732 Other 599 493 -- -- 1,092 ========================================================================================================================= $15,829 $4,748 $3,120 $3,000 $26,697
48 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- The sunglass charge provided for the closure of certain U.S. manufacturing operations and elimination of duplicate administrative functions in the U.S. commercial business. The biomedical charge provided for the closure of certain animal production facilities in North America and Europe, as well as the consolidation of certain administrative functions. The contact lens charge provided for costs associated with losses on disposition of assets related to elective strategy changes for the traditional lens business. The corporate administrative charge provided for the streamlining of corporate operations. Asset writedowns primarily related to facilities being closed and losses on disposition of equipment. Other charges primarily included losses under leases and other commitments. In the fourth quarter of 1993, the Company announced plans to restructure certain of its operations and recorded a $50,000,000 pre-tax restructuring charge related to sunglass, pharmaceutical and biomedical operations. The major components of the restructuring charge are set forth in the table below:
Dollar Amounts In Thousands Sunglass Pharmaceutical Biomedical Total - - ------------------------------------------------------------------------------------------------------- Employee separations $10,962 $ 750 $3,289 $15,001 Asset writedowns 14,603 2,446 2,052 19,101 Other 8,957 5,822 1,119 15,898 - - ------------------------------------------------------------------------------------------------------- $34,522 $9,018 $6,460 $50,000 =======================================================================================================
The charge provided for costs to eliminate various sunglass manufacturing, assembly and distribution operations, complete the closure of a pharmaceutical manufacturing facility in New York, eliminate certain product lines and realign global operations in all three businesses. Cash payments for employee separations and other charges, including losses on leases for vacated facilities and project management expenses totaled $4,010,000, $21,833,000 and $4,978,000 in 1995, 1994 and 1993, respectively. There were no accruals related to the 1993 restructuring actions remaining at December 30, 1995. Note 4 --- GOODWILL IMPAIRMENT In December 1994, decisions were made fundamentally realigning oral care operations. Management of worldwide oral care operations was centralized and most non-U.S. oral care operations were redirected to selected distributors. These decisions were based on increased competition, a significant decline in market share and operating losses which greatly reduced the expected life cycle and estimated future cash flows for this business and reflected the Company's belief that future strategic investments in its core and emerging businesses would provide higher long-term shareholder returns. As a result, in December 1994 the Company recognized a goodwill impairment charge of $75,000,000, with no associated tax benefit. In determining the amount of the impairment charge, the Company developed its best estimate of operating cash flows over the remaining business life cycle, assumed to be 14 years. Future cash flows, excluding interest charges, were discounted using an estimated 8.6% incremental borrowing rate. Bausch & Lomb Incorporated and Consolidated Subsidiaries 49 Notes To Financial Statements - - -------------------------------------------------------------------------------- Note 5 --- GEOGRAPHIC REGION AND BUSINESS SEGMENT INFORMATION The Company's operating results are reported in two business segments, healthcare and optics. The healthcare segment includes personal health, medical and biomedical products. In the personal health sector, the Company's principal lines of business include contact lens care products, eye care solutions, over-the-counter medications, skin care products and oral care products. Medical sector lines include contact lenses and lens materials, prescription pharmaceuticals, hearing aids and dental implants. Biomedical sector lines include purpose-bred laboratory animals for biomedical research, specific pathogen-free eggs for vaccine production and a variety of biotechnical and professional services provided to the scientific research community. Principal lines of business in the optics segment include sunglasses and optical thin film coating services and products. Effective April 1, 1995, the Company divested its sports optics business, which marketed binoculars, riflescopes and telescopes. The majority of the Company's products are marketed globally through optical shops, distributors, healthcare practitioners or retailers. Ophthalmic pharmaceuticals and over-the-counter medications are marketed primarily in the U.S. and Europe, and skin care products are marketed in the U.S. and Canada. Together, the solutions and sunglass lines account equally for about half the Company's revenues, while contact lenses and biomedical products account equally for another 25%. All other lines individually account for less than 10% of total Company revenues. Inter-area sales to affiliates represent products which are transferred between geographic regions on a basis intended to reflect the market value of the products as nearly as possible. Identifiable assets are those assets used exclusively in the operations of each business segment or geographic region, or which are allocated when used jointly. Corporate assets are principally cash and cash equivalents, short-term investments, other investments and certain property, plant and equipment. The following tables present sales and other financial information by geographic region and business segment for the years 1995, 1994 and 1993: Geographic Region
Europe, Canada & Middle East Asia- Latin Dollar Amounts In Thousands U.S. & Africa Pacific America Consolidated - - ----------------------------------------------------------------------------------------------------------------------------- 1995 Sales to unaffiliated customers $997,563 $471,049 $345,310 $118,961 $1,932,883 Inter-area sales to affiliates 151,646 79,655 12,990 4,205 248,496 Business segment earnings 136,813 93,156 43,630 (2,044) 271,555(1) Identifiable assets 1,152,623 1,078,415 244,056 74,972 2,550,066 ============================================================================================================================= 1994 Sales to unaffiliated customers $1,045,263 $414,236 $303,702 $129,485 $1,892,686 Inter-area sales to affiliates 135,597 101,571 1,643 4,375 243,186 Business segment earnings 35,253 91,939 29,964 6,460 163,616(2) Identifiable assets 1,187,569 918,869 269,349 81,944 2,457,731 ============================================================================================================================= 1993 Sales to unaffiliated customers $1,012,690 $396,909 $292,183 $128,268 $1,830,050 Inter-area sales to affiliates 130,093 94,949 2,139 2,397 229,578 Business segment earnings 153,928 89,980 17,724 10,215 271,847(3) Identifiable assets 1,306,114 837,007 266,333 83,543 2,492,997 =============================================================================================================================
1 Includes restructuring charges of $23.7 million as follows: U.S., $19.9; Europe, Middle East & Africa, $3.3 and Canada & Latin America, $0.5. 2 Includes goodwill impairment charge of $75.0 million in the U.S. 3 Includes restructuring charges of $48.8 million as follows: U.S., $23.5; Europe, Middle East & Africa, $16.6; Asia-Pacific, $4.6 and Canada & Latin America, $4.1. 50 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Business Segment
Dollar Amounts In Thousands 1995 1994 1993 - - ----------------------------------------------------------------------------------------------------- NET SALES Healthcare $1,359,477 $1,249,923 $1,169,192 Optics 573,406 642,763 660,858 - - ----------------------------------------------------------------------------------------------------- $1,932,883 $1,892,686 $1,830,050 ===================================================================================================== EARNINGS BEFORE TAXES AND MINORITY INTEREST Healthcare $229,231 $91,541 $192,318 Optics 42,324 72,075 79,529 - - ----------------------------------------------------------------------------------------------------- Business segment earnings 271,555(1) 163,616(3) 271,847(4) Corporate administration expense 60,910(2) 43,849 46,980(5) - - ----------------------------------------------------------------------------------------------------- Operating earnings 210,645 119,767 224,867 Interest expense, net 6,756 6,040 19,913 Loss (gain) from foreign currency, net 6,244 (2,615) (11,068) Gain on sale of Sports Optics Division (35,902) -- -- Litigation provision 21,700 -- -- - - ----------------------------------------------------------------------------------------------------- $211,847 $116,342 $216,022 ===================================================================================================== DEPRECIATION Healthcare $63,865 $56,833 $46,778 Optics 22,484 22,605 22,043 Corporate 2,867 2,983 3,180 - - ----------------------------------------------------------------------------------------------------- $89,216 $82,421 $72,001 ===================================================================================================== IDENTIFIABLE ASSETS Healthcare $1,219,384 $1,211,165 $1,329,854 Optics 410,097 471,794 492,507 Corporate 920,585 774,772 670,636 - - ----------------------------------------------------------------------------------------------------- $2,550,066 $2,457,731 $2,492,997 ===================================================================================================== CAPITAL EXPENDITURES Healthcare $65,715 $63,933 $83,460 Optics 19,937 20,412 21,254 Corporate 9,829 462 2,518 - - ----------------------------------------------------------------------------------------------------- $95,481 $84,807 $107,232 =====================================================================================================
(1) Includes restructuring charges of $23.7 million as follows: Healthcare, $7.9; Optics, $15.8. (2) Includes restructuring charges of $3.0 million. (3) Includes goodwill impairment charge of $75.0 million for Healthcare. (4) Includes restructuring charges of $48.8 million as follows: Healthcare, $15.9; Optics, $32.9. (5) Includes restructuring charges of $1.2 million. Note 6 --- SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION Accounts Receivable The Company has entered into two agreements to sell designated pools of U.S. trade accounts receivable up to $75,000,000 and non-U.S. trade accounts receivable up to 3,000,000,000 Japanese yen. The U.S. agreement expires in July 1996 and the non-U.S. agreement expires in December 1997. At December 30, 1995 and December 31, 1994, approximately $95,000,000 and $108,000,000 of receivables, respectively, were sold under these agreements and were reflected as reductions of trade accounts receivable. Fees and discounting expense related to the U.S. agreement were recorded as interest expense and totaled approximately $4,500,000 in 1995, $3,700,000 in 1994 and $3,000,000 in 1993. Bausch & Lomb Incorporated and Consolidated Subsidiaries 51 Notes To Financial Statements - - -------------------------------------------------------------------------------- Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across different businesses and geographic areas. Inventories
DECEMBER 30, DECEMBER 31, Dollar Amounts In Thousands 1995 1994 - - ------------------------------------------------------------------------------------- Raw materials and supplies $ 76,834 $ 79,295 Work in process 21,905 23,985 Finished products 214,901 222,079 - - ------------------------------------------------------------------------------------- 313,640 325,359 Less: Allowance for valuation of certain U.S. inventories at last-in, first-out cost 9,342 12,578 ===================================================================================== $304,298 $312,781
Inventories valued using the LIFO method were approximately $83,631,000 and $98,442,000 at December 30, 1995 and December 31, 1994, respectively. Property, Plant And Equipment
DECEMBER 30, DECEMBER 31, Dollar Amounts In Thousands 1995 1994 - - ------------------------------------------------------------------------------------- Land $ 22,124 $ 21,474 Leasehold improvements 33,720 32,635 Buildings 396,954 366,003 Machinery and equipment 629,952 587,586 - - ------------------------------------------------------------------------------------- 1,082,750 1,007,698 Less: Accumulated depreciation 532,384 464,948 - - ------------------------------------------------------------------------------------- $ 550,366 $ 542,750 =====================================================================================
Cash Flow Information For the years ended December 30, 1995, December 31, 1994 and December 25, 1993 payments of interest were $44,587,000, $39,842,000 and $29,307,000, respectively, and payments of income taxes were $96,706,000, $69,827,000 and $61,056,000, respectively. Note 7 -- OTHER INVESTMENTS In 1995, the Company's subsidiaries, Windmill Investors, Ltd. and Bausch & Lomb Ireland, made investments totaling 219,000,000 Netherlands guilders (NLG), approximating $136,000,000, in securities issued by a subsidiary of a triple-A rated financial institution. The issuer's investments are restricted to high quality short-term investments and government obligations and the issuer reinvests all of its income. At December 30, 1995, the average U.S. dollar rate of return was 5.47%, including the effects of foreign currency transactions which effectively hedge the currency risk and convert Bausch & Lomb Ireland's NLG income to a U.S. dollar rate of return. The Company's subsidiaries have the right to call for redemption of the shares they hold each quarter at net asset value. In the event this right is not exercised, the triple-A rated financial institution has the right to put the shares it owns to the Company's subsidiaries in March and June, 2003. In 1994, the Company's subsidiary, Bausch & Lomb Ireland, invested $425,000,000 in securities issued by a subsidiary of another triple-A rated financial institution. The investment responded to a recent change in U.S. tax law, under which the Company elected to invest in qualifying "active" assets rather than face increased tax expenses associated with its non-U.S. earnings. The securities rank senior to all other classes of the issuer's equity and rank junior to the secured and unsecured liabilities of the issuer, including subordinated debt obligations, and are neither payable upon demand nor have a fixed maturity. The securities pay quarterly cumulative dividends 52 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- at a variable LIBOR-based rate. At December 30, 1995, this rate was 5.14%. The issuer holds a call option on the securities, exercisable upon 180 days notice. The securities will become freely transferable in approximately eight years. At that time, the dividend rate will be reset, if necessary, to ensure that the market value of the securities is equal to par value. Management believes that the investments are fully recoverable, based on the high quality and stability of the institutions, however, the investments are subject to equity risks. Note 8 --- PROVISION FOR INCOME TAXES An analysis of the components of earnings before income taxes and minority interest and the related provision for income taxes is presented below:
Dollar Amounts In Thousands 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------ Earnings before income taxes and minority interest: U.S. $ 64,451 $ (3,556) $ 92,645 Non-U.S. 147,396 119,898 123,377 - - ------------------------------------------------------------------------------------------------------------ $211,847 $116,342 $216,022 Provision for income taxes: - - ------------------------------------------------------------------------------------------------------------ Federal Current $ 57,146 $ (7,316) $ 63,118 Deferred (27,492) 28,323 (22,526) State Current 12,335 (2,107) 10,274 Deferred (6,259) 5,613 (4,127) Foreign Current 47,122 27,534 41,940 Deferred (4,784) 9,115 (16,275) - - ------------------------------------------------------------------------------------------------------------ $ 78,068 $ 61,162 $ 72,404 ============================================================================================================
Deferred taxes 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 and are detailed below. Realization of the tax loss and credit carryforwards, which expire between 1996 and 2009, is contingent on future taxable earnings. Valuation allowances have been recorded for these and other asset items which may not be realized.
DECEMBER 30, 1995 DECEMBER 31, 1994 - - ---------------------------------------------------------------------------------------------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Dollar Amounts In Thousands Assets Liabilities Assets Liabilities - - ---------------------------------------------------------------------------------------------------------------- Employee benefits and compensation $ 66,945 $ 4,697 $ 60,599 $ 4,697 Inventories 36,764 2,436 24,993 281 Tax loss and credit carryforwards 33,315 -- 20,527 -- Restructuring accruals 11,437 -- 1,578 -- Sales and allowance accruals 20,073 20 16,420 -- Legal and litigation accruals 9,897 1,537 11,437 1,537 Depreciation and amortization 7,931 69,762 6,945 65,306 Unrealized foreign exchange losses 10,536 5,100 1,985 -- State and local income tax accruals 107 7,902 -- 11,122 Other accruals 10,777 7,296 4,138 7,425 - - ---------------------------------------------------------------------------------------------------------------- 207,782 98,750 148,622 90,368 Less: Valuation allowance 26,475 -- 17,882 -- - - ---------------------------------------------------------------------------------------------------------------- Deferred taxes $181,307 $98,750 $130,740 $90,368 ================================================================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries 53 Notes To Financial Statements - - -------------------------------------------------------------------------------- Reconciliations of the statutory U.S. federal income tax rate to effective tax rates were as follows:
1995 1994 1993 - - ---------------------------------------------------------------------------------------------------------- Statutory U.S. tax rate 35.0% 35.0% 35.0% Rate differential for Subpart F income 5.3 2.4 6.3 State income taxes, net of federal tax benefit 1.9 2.0 1.9 Goodwill amortization 1.0 2.2 0.8 Goodwill impairment charge with no income tax benefit -- 22.6 -- Difference between non-U.S. and U.S. tax rates (4.4) (2.9) (8.1) Effect of enacted changes in non-U.S. tax rates -- (1.7) -- Foreign Sales Corporation tax benefit (1.2) (2.2) (1.3) Other (0.7) (4.8) (1.1) - - ---------------------------------------------------------------------------------------------------------- Effective tax rate 36.9% 52.6% 33.5% ==========================================================================================================
At December 30, 1995, earnings considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $655,000,000. Under the Omnibus Budget Reconciliation Act of 1993, U.S. taxes could be assessed on undistributed current or retained earnings of certain non-U.S. subsidiaries. However, foreign tax credits associated with those earnings substantially offset any increase in the Company's overall income tax expense. In April 1991 and December 1991, the Internal Revenue Service (the "Service") issued Notices of Deficiency relating to the Company's federal income tax returns for the 1983-1984 and the 1985-1987 periods. The Company filed petitions in the U.S. Tax Court (the "Court") to contest the deficiencies alleged in the notices. Subsequently, the Company and the Service settled all the issues raised in the notices except for those relating to the Company's sunglass operations in Ireland and Hong Kong. In December 1993, the trial on the overseas sunglass issues for the 1983-1984 and 1985-1987 periods was held in the U.S. Tax Court. The Court had the matter under review until February 15, 1996 at which time a Memorandum Opinion was filed. The Court upheld the Company's position with respect to the sunglass operations in Ireland and Hong Kong and against the deficiencies alleged in the notices. The Service has the right to appeal this decision. Note 9 --- DEBT Short-term debt at December 30, 1995 and December 31, 1994 consisted of $262,001,000 and $234,739,000 in U.S. commercial paper and $22,509,000 and $18,044,000 in non-U.S. borrowings, respectively. To support its liquidity requirements, the Company maintains U.S. revolving credit agreements with 364-day credit terms totaling $290,000,000, however, no debt was outstanding under these agreements at December 30, 1995. A commitment fee at a rate of 0.05% is charged on the unused portion. The interest rate under the agreements is at the prime rate, or at the Company's option, at a mutually acceptable market rate. The Company also currently maintains unused U.S. bank lines of credit amounting to approximately $34,000,000. All compensating balance arrangements are informal and do not restrict the withdrawal of funds. Under these arrangements, the Company maintained average compensating bank balances of $8,400,000 in 1995. The Company has entered into two seven-year interest rate swap agreements, each in notional amounts of $100,000,000, which convert $200,000,000 of U.S. commercial paper into fixed rate obligations with an effective interest rate of 6.48%. The swaps will terminate on January 1, 2002. The average U.S. short-term interest rates, which include the effect of the interest rate swap agreements, were 6.3% and 5.9% at year end 1995 and 1994, respectively. The rate outside the U.S. was 6.1% at the end of 1995 and 1994. The aggregate Company rate was 6.3% at year end 1995 and 6.0% at year end 1994. Average short-term interest rates for the year, excluding the effect of short-term borrowings in the highly inflationary economy of Brazil, were 6.3% in 1995 and 4.6% in 1994. The maximum amount of short-term debt at the end of any month was $297,213,000 in 1995 and $333,500,000 in 1994. Average month end borrowings were $252,367,000 in 1995 and $294,300,000 in 1994. 54 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- The components of long-term debt were:
Dollar Amounts In Thousands 1995 1994 - - --------------------------------------------------------------------------------------------- Fixed rate notes payable: Notes due in 1995 $ -- $ 44,989 Notes due in 1996 94,788 94,879 Notes due in 1997 and 2003, effectively converted to floating rate 170,000 170,000 Other 9,191 10,710 Capital lease obligations: Industrial Development Bonds, variable rate due in 2015 8,500 8,500 Other 7,485 8,214 - - --------------------------------------------------------------------------------------------- 289,964 337,292 Less: Current portion 98,990 47,788 - - --------------------------------------------------------------------------------------------- $190,974 $289,504 =============================================================================================
The notes due in 1996 bear interest at a weighted average rate of 4.9%. The Company has entered into interest rate swap agreements with an aggregate notional amount of $170,000,000 associated with long-term notes payable of the same dollar amount maturing in 1997 and 2003, which effectively convert the notes to floating rate obligations with an interest rate based on the one-month U.S. composite commercial paper rate. At December 30, 1995, this rate was 5.8%. Interest rate swap agreements resulted in a reduction in the long-term effective interest rate from 6.0% to 5.4% in 1995 and from 5.8% to 4.7% in 1994. The Industrial Development Bonds bear interest at a variable rate based on a range of 40% to 90% of the prime rate as determined by prevailing market conditions. At December 30, 1995, this rate was 5.7%. In 1994, the Company established a $300,000,000 medium-term note program, providing for the issuance of fixed or variable rate notes with maturities between nine months and 30 years. There have been no borrowings under this program through December 30, 1995. Long-term borrowing maturities during the next five years are $98,990,000 in 1996, $87,974,000 in 1997, $1,816,000 in 1998, $1,753,000 in 1999 and $1,624,000 in 2000. Note 10 --- OPERATING LEASES The Company leases land, buildings and machinery and equipment under noncancelable operating leases. Future minimum payments under these leases as of December 30, 1995 are as follows: Dollar Amounts In Thousands - - ---------------------------------------------------- 1996 $24,318 1997 18,259 1998 14,493 1999 10,280 2000 8,106 Later years 15,767 - - ---------------------------------------------------- Total minimum lease payments $91,223 ==================================================== Total rental expense for the years ended December 30, 1995, December 31, 1994 and December 25, 1993 amounted to $28,043,000, $27,055,000 and $26,862,000, respectively. During 1995, the Company entered into a seven-year variable rate operating lease associated with an office facility in Rochester, New York, with an associated residual value guarantee in an amount not to exceed $54,600,000. At December 1995, estimated annual rent payments under the agreement approximated $4,900,000. Bausch & Lomb Incorporated and Consolidated Subsidiaries 55 Notes To Financial Statements - - -------------------------------------------------------------------------------- Note 11 --- EMPLOYEE BENEFITS The Company and its consolidated subsidiaries sponsor several retirement plans which, in the aggregate, cover substantially all U.S. employees and employees in certain other countries. In general, retirement benefits are based on years of service and the employee's compensation near retirement. Certain non-U.S. pension arrangements also provide termination indemnity payments. For the largest U.S. plan, employees are eligible to participate upon the attainment of age 21 and the completion of one year of service. These employees vest in the plan after five years of service or the attainment of age 55. The Company funds its major U.S. plan in an amount not less than minimum statutory funding requirements nor more than the maximum amount that can be deducted for federal income tax purposes. The plan's investments consist primarily of equity securities, corporate bonds, U.S. government issues and cash and cash equivalents. The Company also sponsors defined contribution plans and participates in government-sponsored programs in certain non-U.S. locations. In addition to retirement plans, the Company sponsors a participatory defined benefit postretirement plan providing medical and life insurance benefits to the majority of its U.S. employees. The plan provides benefits to retirees who have attained age 55 with ten years of service. Covered spouses and certain employees on disability also qualify for participation in the plan. In general, under the medical benefits plan participants receive a stated percentage of most medical expenses, reduced for annual and lifetime deductibles and any payments made by government programs and other group coverage. The Company has established a Voluntary Employee Benefit Association trust to provide for payment of these benefits. Annual contributions of $5,000,000 were made to the trust in 1995 and 1994. Earnings from the investments in this trust, primarily participating insurance contracts, will over time reduce the expense associated with providing these benefits. The Company intends to continue a program of prefunding for these benefits on an annual basis, but the amount of any future contributions is discretionary. The Company also provides postretirement benefits to employees at a number of its non-U.S. locations in accordance with local statutory requirements. Such benefits are generally provided through government-sponsored plans. Under the 1990 Stock Incentive Plan, a committee of the board of directors of the Company is authorized to grant restricted shares of Common stock to certain employees. The committee has awarded 288,819 and 95,700 restricted shares of Common stock to certain employees, including officers, in 1995 and 1994, respectively. Shares vest under these grants in thirds, with vesting criteria including attainment of certain stock price performance goals, satisfactory job performance and continued employment until applicable vesting dates. No more than one-third of any grant will vest in a fiscal year. At December 30, 1995, 114,408 shares have vested. Unearned compensation is recorded at the date of the award based on the market value of the shares. Unearned compensation related to these shares, included as a separate component of shareholders' equity, aggregated $9,155,000 and $3,212,000 net of forfeitures at December 30, 1995 and December 31, 1994, respectively, and is amortized to expense as stock performance goals are met over the applicable vesting period. The amount amortized to expense in 1995 was $4,324,000. In addition, the Company sponsors supplemental defined benefit retirement plans for certain key employees. These plans are unfunded. The pension liability associated with the plans has generally been determined using the same actuarial methods and assumptions as those used for the Company's qualified plans. The annual cost of these plans has been included in the net periodic pension cost shown below and totaled $921,000 in 1995 and $939,000 in 1994. The projected benefit obligation relating to these unfunded plans was $6,107,000 at December 30, 1995 and $5,306,000 at December 31, 1994. Plan assets and the projected benefit obligations have been measured as of December for each period. Net periodic pension and postretirement benefit costs have been determined using assumptions as of the beginning of each year. The overall increase in net periodic pension costs since 1993 was attributable to a net decrease in the discount rate assumption as well as unfavorable demographic experience. The decrease in postretirement benefit expense since 1993 was attributable to changes in assumptions for discount and medical care cost trend rates, population experience and favorable medical claims experience. 56 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- The components of net periodic pension cost and U.S. net periodic postretirement benefit cost are presented below:
1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------- U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Dollar Amounts In Thousands Plans Plans Plans Plans Plans Plans - - -------------------------------------------------------------------------------------------------------------------------- RETIREMENT PLANS Service cost-benefits earned during the period $ 5,444 $2,071 $ 6,822 $2,003 $4,493 $1,696 Interest cost on projected benefit obligation 10,921 1,809 10,305 1,562 9,615 1,230 Actual return on plan assets (26,397) (1,874) 711 708 (12,322) (3,140) Net amortization and deferral 17,701 954 (9,760) (1,690) 3,981 2,643 - - -------------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 7,669 $2,960 $ 8,078 $2,583 $5,767 $2,429 ========================================================================================================================== OTHER POSTRETIREMENT BENEFITS Service cost-benefits earned during the period $ 1,975 $ 2,598 $4,107 Interest cost on accumulated benefit obligation 6,054 6,463 8,869 Actual return on plan assets (2,946) 1,080 377 Net amortization and deferral (346) (2,489) (792) - - -------------------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 4,737 $ 7,652 $12,561 ==========================================================================================================================
Key economic assumptions used in developing the projected benefit obligations for the Company's major U.S. and non-U.S. retirement plans and U.S. postretirement plans at year-end were as follows:
1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------ U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Plans Plans Plans Plans Plans Plans - - ------------------------------------------------------------------------------------------------------------------------ Discount rate 7.75% 5.5-8.0% 8.25% 5.5-8.0% 7.0% 5.5-8.0% Rate of increase in compensation levels 5.0% 4.2-6.5% 5.0% 4.2-6.5% 5.0% 4.2-6.5% Expected long-term rate of return on plan assets 9.0-10.0% 5.5-9.0% 9.0-10.0% 5.5-9.0% 9.0-10.0% 5.5-9.0% Medical care cost trend rate 11.0% 12.0% 12.0% =======================================================================================================================
In December 1995, the Company elected to revise its assumptions for all U.S. plans in recognition of a lower level of current long-term interest rates. The discount rate was lowered from 8.25% to 7.75%. The medical care cost trend rate will decrease one percent per year to 6.0% in the year 2000 for future valuations. The medical care cost trend rate assumption has a significant effect on the expense reported. For example, a 1% increase in the medical care cost trend rate would have increased the aggregate of the service and the interest cost components of net periodic postretirement benefit cost by approximately $1,000,000 or 12% in 1995. Bausch & Lomb Incorporated and Consolidated Subsidiaries 57 Notes To Financial Statements - - -------------------------------------------------------------------------------- The following tables set forth the funded status and amounts recognized in the Company's consolidated balance sheet: Retirement Plans
DECEMBER 30, 1995 DECEMBER 31, 1994 - - ------------------------------------------------------------------------------------------------------------------------------ Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Dollar Amounts In Thousands Benefits Assets Benefits Assets - - ------------------------------------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Vested benefits $17,589 $136,578 $9,044 $129,317 Non-vested benefits 705 3,952 411 4,081 - - ------------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation 18,294 140,530 9,455 133,398 Effect of projected future salary increases 9,475 15,699 4,289 16,066 - - ------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation 27,769 156,229 13,744 149,464 Plan assets at fair value 32,651 119,460 13,595 110,996 - - ------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligation (less than) in excess of plan assets (4,882) 36,769 149 38,468 Unrecognized net gain (loss) from past experience different from that assumed 3,139 (6,393) 180 (6,096) Unrecognized prior service costs 59 (13,413) 21 (14,906) Unrecognized net transition obligation (12) (6,364) 578 (7,547) Additional liability -- 11,334 -- 18,410 - - ------------------------------------------------------------------------------------------------------------------------------ Accrued pension liability $(1,696) $21,933 $928 $28,329 ==============================================================================================================================
Other Postretirement Benefits
DECEMBER 30, DECEMBER 31, Dollar Amounts In Thousands 1995 1994 - - -------------------------------------------------------------------------------------------------------- Actuarial present value of postretirement benefit obligations: Retirees $54,253 $59,924 Active eligible participants 6,800 8,578 Other active participants 21,556 18,385 - - -------------------------------------------------------------------------------------------------------- Accumulated benefit obligation 82,609 86,887 Plan assets at fair value 16,489 8,543 - - -------------------------------------------------------------------------------------------------------- Accumulated benefit obligation in excess of plan assets 66,120 78,344 Unrecognized prior service cost 2,029 2,201 Unrecognized net gain 31,798 25,445 - - -------------------------------------------------------------------------------------------------------- Accrued postretirement benefit liability $99,947 $105,990 ========================================================================================================
The unrecognized projected pension benefit obligation in excess of plan assets for retirement plans is being amortized against net periodic pension cost over the remaining service lives of the plan participants. The Company has recorded an additional liability to give recognition to the underfunded plan positions. An intangible asset reflecting the related unrecognized prior service cost has also been recorded. Increasing the assumed medical care cost trend rates by one percentage point would have increased the accrued postretirement benefit liability as of December 30, 1995 by approximately $9,000,000 or 11%, reflecting the effect this assumption has on the calculation of the obligation. 58 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Note 12 --- MINORITY INTEREST In December 1993, four wholly-owned subsidiaries of the Company contributed operating and financial assets with an estimated market value of $1,006,000,000 to Wilmington Partners L.P., a newly formed Delaware limited partnership (the "Partnership"), in exchange for an aggregate 72% general and limited partnership interest in the Partnership. Additionally, an outside investor contributed $400,000,000 in cash to the Partnership in exchange for a 28% limited partnership interest. Wilmington Management Corp., a wholly-owned subsidiary of the Company, manages the activities of Wilmington Partners L.P. and has fiduciary responsibilities to the Partnership. This transaction did not result in any gain or loss for the Company. The Partnership is a separate legal entity from the Company whose purpose is to own and manage a portfolio of assets. Those assets include portions of the Company's biomedical operations at Charles River Laboratories, Inc. (including small research animals, bioprocessing and ovum-derived vaccine products), those used for the manufacture and sale of rigid gas permeable contact lens materials and lens care solutions at Polymer Technology Corporation, cash and cash equivalents, a long-term note guaranteed by the Company and certain floating rate demand notes due from certain of the Company's subsidiaries. At December 30, 1995 and at December 31, 1994, the Company had $495,159,000 and $470,900,000 of borrowings from the Partnership, respectively, which were used to reduce U.S. short-term borrowings. For financial reporting purposes, the assets, liabilities and earnings of the Partnership entities have continued to be included in the Company's consolidated financial statements. The outside investor's limited partnership interest in the Partnership has been recorded as minority interest. Note 13 --- SHAREHOLDERS' EQUITY At December 30, 1995, 10,000 shares of 4% Cumulative Preferred stock, 25,000,000 shares of Class A Preferred stock, 15,000,000 shares of Class B stock and 200,000,000 shares of Common stock were authorized. The Company issues treasury shares to fulfill its obligations under its stock option plans. The difference between the cost of treasury shares issued and the option price is charged to capital in excess of par value. Changes in shareholders' equity accounts are summarized below:
Common And Class B Capital In Cumulative Treasury ------------------ Excess Of Translation --------- Unearned Amounts In Thousands Shares Amount Par Value Adjustment Shares Amount Compensation - - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 26, 1992 61,090 $24,150 $89,088 $63,465 (1,646) $(63,563) $ -- Shares issued under stock option plans and restricted stock awards 45 4 (987) -- 217 8,648 -- Repurchase of Common and Class B stock -- -- -- -- (587) (28,753) -- Foreign currency translation adjustment -- -- -- (54,550) -- -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 25, 1993 61,135 24,154 88,101 8,915 (2,016) (83,668) -- Shares issued under stock option plans and restricted stock awards 136 11 5,748 -- 298 9,980 -- Repurchase of Common and Class B stock -- -- -- -- (561) (20,581) -- Stock issued under restricted Common stock purchase plans -- -- -- -- -- -- (3,212) Foreign currency translation adjustment -- -- -- 38,694 -- -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 61,271 24,165 93,849 47,609 (2,279) (94,269) (3,212) Shares issued under stock option plans and restricted stock awards 196 15 13,939 -- 298 9,681 -- Repurchase of Common and Class B stock -- -- -- -- (2,545) (94,142) -- Stock issued under restricted Common stock purchase plans -- -- -- -- -- -- (10,267) Amortization of unearned compensation -- -- -- -- -- -- 4,324 Foreign currency translation adjustment -- -- -- 37,513 -- -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 30, 1995 61,467 $24,180 $107,788 $85,122 (4,526) $(178,730) $(9,155) =================================================================================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries 59 Notes To Financial Statements - - -------------------------------------------------------------------------------- The cumulative translation adjustment included the effects of translating assets and liabilities of certain non-U.S. subsidiaries at current exchange rates. Translation adjustments relating to non-U.S. subsidiaries in countries with highly inflationary economies were included in earnings. Since 1987, the board of directors has authorized the repurchase, at management's discretion, up to a total of 8,000,000 of the Company's issued shares of Common stock. At December 30, 1995, 1,836,200 shares may be repurchased under the terms of the authorization. Unearned compensation relates to awards of restricted stock under the 1990 Stock Incentive Plan. Unearned compensation is recorded at the date of such awards based on the market value of the shares and is expensed as performance goals are met over the vesting period. In 1988, the Company's board of directors approved the adoption of a shareholder rights plan, in which preferred share purchase rights were distributed as a dividend at the rate of one right for each outstanding share of the Company's Common and Class B stock. Common and Class B shares issued subsequent to the adoption of the rights plan automatically have preferred share purchase rights attached to them. Under certain circumstances each right entitles shareholders to purchase one two-hundredth of a share of Series A Preferred stock, par value $1.00 per share. The rights may become exercisable under certain circumstances involving actual or potential acquisitions of 20% or more of the outstanding Common and Class B stock by a person or group. The board of directors may substitute common stock equivalent preferred shares for Common shares for the exercise of stock purchase rights. Until the rights become exercisable, they have no dilutive effect on earnings per Common share. The rights, which are non-voting, expire on July 1, 1998, and may be redeemed by the Company at a price of $0.005 per right at any time prior to the acquisition by a person or group of 20% of the outstanding shares of the Company's Common and Class B stock. In the event a person or group has acquired 20%, but not more than 50%, of such shares, the Company may redeem the rights of each holder, other than the acquirer, in exchange for either one share of Common stock or one two-hundredth of a share of Series A Preferred stock. Under the 1975, 1982, 1987 and 1990 stock option plans approved by the shareholders, Class B stock has been authorized for issuance to employees. Class B stock, which is used only in connection with the plans, has the same voting, dividend and liquidation rights as Common stock. Options granted under the 1975 plan expire either five years (qualified) or ten years (nonqualified) from the date of grant. All options granted under the 1982, 1987 and 1990 stock incentive plans expire ten years from the date of grant. The following table summarizes data for the Company's stock option plans:
1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------------- Number Of Option Price Number Of Option Price Number Of Option Price Shares Per Share Shares Per Share Shares Per Share - - -------------------------------------------------------------------------------------------------------------------------------- Shares under option at beginning of year 3,891,276 $15.59-$55.44 3,905,553 $9.84-$58.88 2,866,741 $9.84-$58.88 Options granted 1,181,585 $33.94-$42.19 432,485 $31.56-$39.25 1,332,265 $46.63-$52.00 Options exercised (207,184) $15.59-$42.69 (197,882) $9.84-$49.31 (236,757) $9.84-$52.94 Options canceled (440,078) $31.56-$55.44 (248,880) $13.28-$58.88 (56,696) $9.84-$55.44 ================================================================================================================================ Shares under option at end of year 4,425,599 $16.97-$55.44 3,891,276 $15.59-$55.44 3,905,553 $9.84-$58.88 Total options exercisable at end of year 2,661,110 $16.97-$55.44 2,529,108 $15.59-$55.44 2,038,238 $9.84-$58.88 ================================================================================================================================ Shares available for future grants at end of year 2,485,808 2,547,340 2,543,890 ================================================================================================================================
60 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Under these plans, employees may borrow an amount equal to the purchase price of shares secured by pledge agreements with the Company. Participants' borrowings were $4,648,000 in 1995, $4,521,000 in 1994 and $3,483,000 in 1993. Loans to officers and directors included in these borrowings were $3,149,000 in 1995, $3,746,000 in 1994 and $3,414,000 in 1993. Note 14 --- FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments consisted of the following:
DECEMBER 30, 1995 DECEMBER 31, 1994 - - --------------------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Dollar Amounts In Thousands Value Value Value Value - - --------------------------------------------------------------------------------------------------------------------------- Nonderivatives: Cash and cash equivalents $ 193,814 $ 193,814 $ 230,369 $ 230,369 Short-term investments $ 803 $ 803 $ 2,173 $ 2,173 Other investments $ 561,232 $ 561,232 $ 425,000 $ 425,000 Notes payable $(284,510) $(284,510) $(252,783) $(252,783) Long-term debt, including current portion $(289,964) $(298,223) $(337,292) $(320,884) - - --------------------------------------------------------------------------------------------------------------------------- Derivatives held for purposes other than trading: Foreign exchange instruments: Other current assets $ 7,912 $ 18,176 Accrued liabilities (11,828) (8,622) =========================================================================================================================== Net foreign exchange instruments $ (3,916) $ (400) $ 9,554 $ 18,605 =========================================================================================================================== Interest rate instruments: Other current assets $ 10,236 $ 3,733 Accrued liabilities (10,671) (3,434) - - --------------------------------------------------------------------------------------------------------------------------- Net interest rate instruments $ (435) $ (13,556) $ 299 $ 3,612 ===========================================================================================================================
The carrying amount of cash, cash equivalents and short-term investments approximates fair value because their maturity is generally less than one year in duration. The Company places its cash, cash equivalents and short-term investments with financial institutions and limits the amount of credit exposure with any one financial institution to an amount between $25,000,000 and $50,000,000, based on the credit rating and asset size of the institution. Fair value of other investments was determined based on contract terms and an evaluation of expected cash flows and investment risk. The carrying amount of notes payable approximates fair value because their maturity is generally less than three months in duration. Fair value for long-term debt was estimated using either quoted market prices for the same or similar issues or the current rates offered to the Company for debt with similar maturities. The fair value for foreign exchange and interest rate instruments was determined based upon a model which estimates the fair value of these items using market rates at year-end or was based upon quoted market prices for similar instruments with similar maturities. Note 15 --- DERIVATIVE FINANCIAL INSTRUMENTS Foreign Exchange Risk Management The Company enters into foreign exchange forward and purchased option contracts to hedge foreign currency transactions, firm commitments for the purchase of inventory and equity investments in subsidiaries on a continuing basis for periods consistent with the committed exposures. These hedge instruments are classified as held for purposes other than trading. Gains and losses on the contracts offset losses and gains on the exposures being hedged. The deferred gains and losses are expected to be recognized within one year and have been recorded as other current assets or accrued liabilities. Such amounts totaled less than $500,000 at December 30, 1995 and December 31, 1994. The Company typically leaves unhedged Bausch & Lomb Incorporated and Consolidated Subsidiaries 61 Notes To Financial Statements - - -------------------------------------------------------------------------------- foreign currency and transaction commitment exposures arising in countries with hyperinflationary economies, restrictive exchange controls or undeveloped currency markets because hedging such exposures is not cost effective. The estimated notional amount of such exposures that remained unhedged at December 30, 1995 totaled $5,200,000. Foreign exchange instruments served to hedge the following items: Contractual Amounts At DECEMBER 30, DECEMBER 31, Dollar Amounts In Millions 1995 1994 - - ------------------------------------------------------------------------------ Assets and liabilities $ 775 $ 597 Firm purchase commitments 11 7 Equity investments in non-U.S. subsidiaries 453 399 - - ------------------------------------------------------------------------------ $1,239 $1,003 ============================================================================== Net gains or losses from foreign currency include the amortization of premiums or discounts on the foreign exchange instruments over the contractual term. Amortization of such amounts resulted in income of approximately $673,000 and $13,000,000 for the years ended December 30, 1995 and December 31, 1994 respectively. These amounts relate primarily to Irish pound contracts and result from interest rate differentials in the countries of the currencies being traded. 1995 results reflect the combined impact of rising U.S. interest rates and declining interest rates in Ireland. The Company estimates that a 50 basis point net move in either U.S. or Irish interest rates would have impacted annualized pre-tax income in 1995 by approximately $2,800,000. At December 30, 1995 and December 31, 1994, the Company had entered into forward exchange and option contracts requiring it to buy $989,000,000 and $811,000,000 U.S. dollar equivalent foreign currencies, respectively, primarily Irish pounds, Singapore dollars and Swiss francs, and to sell $250,000,000 and $192,000,000 U.S. dollar equivalent foreign currencies, respectively, primarily Singapore dollars and German marks. The forward exchange instruments have varying maturities with none exceeding twenty-four months. The Company generally makes net settlements for such contracts at maturity, based on rates agreed to at the contracts' inception. Carrying value as presented in the table in Note 14 -- Fair Value Of Financial Instruments does not reflect unrecognized net premium income totaling $766,000 in 1995 and $957,000 in 1994. After including these amounts, outstanding foreign exchange contracts were in a net unrealized negative cash flow position of approximately $3,216,000 at December 30, 1995 and a net unrealized positive cash flow position of approximately $10,511,000 at December 31, 1994. This net cash flow position is highly sensitive to changes in foreign exchange rates. The Company estimates that for each $0.10 move in the U.S. dollar to Irish pound exchange rate, the annualized cash flow impact for 1995 would have been approximately $35,000,000. The Company staggers the maturities of the forward exchange and option contracts to mitigate the impact of contract settlements on cash flow in any given period. The periodic cash inflows or outflows from maturing or terminated forward exchange and option contracts impact the Company's short-term debt position, but are not of sufficient magnitude to adversely impact the Company's ability to adequately fund operations or other business opportunities. Interest Rate Risk Management The Company uses interest rate swap agreements to balance its floating rate assets and floating rate liabilities. The swap agreements are classified as held for purposes other than trading. Net payments or receipts under the agreements are accrued and recorded as adjustments to interest expense. As of December 30, 1995 and December 31, 1994, the Company had swap agreements outstanding with an aggregate notional amount of $941,397,000 and $815,000,000, respectively. Of this amount, $380,000,000 is associated with distributions from Wilmington Partners L.P., $170,000,000 is associated with long-term debt placed by the Company, $200,000,000 is associated 62 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- with short-term debt, $65,000,000 is associated with a seven-year variable rate lease commitment for an office facility, and $126,397,000 is associated with NLG investments by Bausch & Lomb Ireland. The following is a summary of the Company's interest rate swap agreements by major type:
DECEMBER 30, DECEMBER 31, Maturities Dollar Amounts In Millions 1995 1994 Through - - --------------------------------------------------------------------------------------------------- Receive fixed swaps-notional amount $550 $550 2003 Average receive rate 5.60 - 6.58% 5.60 - 6.58% Average pay rate 5.69 - 5.84% 5.98 - 6.50% Pay fixed swaps-notional amount $265 $265 2002 Average pay rate 6.48 - 7.25% 6.48 - 7.25% Average receive rate 5.63 - 5.84% delayed start Floating/floating swap-notional amount $126 -- 2000 Pay rate (NLG) 3.45% -- Receive rate (USD) 5.47% -- ===================================================================================================
The variable rate portions of the swaps are based on either three-month LIBOR or the one-month U.S. composite commercial paper rate. Disclosure of the variable rate feature in the above table was based upon current interest rates at December 30, 1995 and December 31, 1994. Changes in LIBOR or commercial paper rates could change the disclosures and future cash flows. Under the swap agreement associated with equity distributions from Wilmington Partners L.P., the Company receives a fixed rate of 6.58% and pays a variable three-month LIBOR rate. Upon early termination of the swap, no breakage payment would be due to either party. The swap agreement is classified as held for purposes other than trading, and is marked-to-market. Periodic settlements under the agreement were accrued and recorded as adjustments to interest expense and investment income in 1995 and 1994, respectively. As of December 30, 1995, the Company had outstanding an interest rate cap with a notional amount of NLG 15,465,000 which protects the Company from its exposures to rising NLG interest rates. At December 31, 1994, the Company further had an interest rate cap associated with the Company's lease obligation for an office facility which had a notional amount of $65,000,000. The notional amounts of foreign exchange and interest rate instruments summarized above generally do not represent amounts exchanged by the parties and thus are not a measure of exposure through the use of these instruments. The amounts exchanged are based on the notional amounts and other terms which relate to interest or exchange rates. The Company is exposed to credit-related losses in the event of non-performance by counterparties to the financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company has established quality standards for the financial institutions with which it deals, basing such standards on the evaluation of a recognized rating agency specializing in the rating of financial institutions. Further, the Company actively monitors the concentration of business activity with each financial institution in order to adequately diversify this credit risk. Assuming non-delivery by all counterparties on all instruments, the maximum credit exposure associated with interest rate and foreign exchange instruments as of December 30, 1995 was $10,236,000 and $7,912,000, respectively. Note 16 --- LITIGATION In June 1994, five separate shareholder actions against the Company and its former Chief Executive Officer and Chairman, Daniel Gill, were filed in the Western and Southern Districts of New York and an additional action, naming the Company, Mr. Gill and four other officers was filed in January 1995, alleging that the Company artificially inflated the value of its stock by making false and misleading statements about expected financial results. In September 1995, the parties Bausch & Lomb Incorporated and Consolidated Subsidiaries 63 Notes To Financial Statements - - -------------------------------------------------------------------------------- agreed to consolidate the actions and plaintiffs have filed several amended complaints. Plaintiffs seek to represent two classes, including all persons who purchased stock during a nine-month period prior to a June 3, 1994 announcement that the Company was undertaking efforts to rebalance distributor inventories and shareholders who purchased shares between June 4, 1994 and January 25, 1995. The Company is vigorously defending itself against these claims. On December 28, 1994, following an article in Business Week magazine questioning the Company's accounting treatment of a fourth quarter 1993 sales program initiated by the Contact Lens Division, the Company received a request from the Securities and Exchange Commission (SEC) for information in connection with an inquiry being conducted by the SEC. Since then, the Company has received additional requests for information from the SEC staff, including those with respect to the Company's global eyewear business. The Company has provided documents and Company personnel have testified. The Company is cooperating with the SEC's continuing investigation and is unable to predict the outcome of this proceeding. In November 1994, the United States District Court for the Northern District of Alabama certified a nationwide class of purchasers of Optima FW and Medalist lenses during the period January 1, 1991 through November 1, 1994 to pursue claims relating to the Company's marketing and sale of the Optima FW, Medalist and SeeQuence 2 contact lens systems. Plaintiffs allege that the Company misled consumers by packaging the same lens under three different names for three different prices. Plaintiffs seek compensatory and punitive damages in an unspecified amount. Another action raising substantially similar claims and filed in California state court in October 1994 has been stayed pending the trial of this action. The Attorney General for the State of Florida has served a subpoena seeking documents relating to the marketing and sale of contact lenses and contact lens solutions. Management continues to vigorously defend the marketing of these lens systems. In May and June 1995, the Company was served with several proposed class action complaints in New York, New Jersey, Pennsylvania and California, alleging that the Company misled consumers in its marketing and sale of Sensitive Eyes Rewetting Drops and Saline Solution and Bausch & Lomb Eyewash. The Company stipulated to certification of a nationwide class of purchasers of Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, ReNu Rewetting Drops and Bausch & Lomb Eyewash between May 1, 1989 and June 30, 1995 in the New York action. In exchange, plaintiffs agreed to seek dismissal of their actions in other states. Another action, which was filed by a separate group of plaintiffs' attorneys in state court in California, was stayed by the court pending further review. Management vigorously defends the marketing of these products. In June 1994, the Florida Attorney General, acting on behalf of disposable contact lens consumers in the State of Florida, filed an antitrust action against the Company and others in the United States District Court for the Middle District of Florida. The complaint challenges the Company's long-standing policy of selling contact lenses only to licensed professionals. Plaintiffs allege that the policy was adopted in conspiracy with others to eliminate alternative channels of trade from the disposable lens market. The Florida Attorney General seeks treble damages on behalf of all purchasers of contact lenses, whether from the Company or others, a $1,000,000 penalty and injunctive relief. A number of consumer class actions have been consolidated in the Middle District of Florida and actions are pending in California, Alabama and Tennessee state courts. The complaints make similar allegations and seek similar relief on behalf of consumers outside the State of Florida. The Company defends its policy as a lawfully adopted means of insuring effective distribution of its products and safeguarding consumers' health. In 1995, the Company established additional provisions for, among other things, the costs and expenses associated with certain litigation against the Company. One of the matters related to litigation arising from the marketing and sale of Miracle-Ear hearing aids manufactured and sold by the Company's Dahlberg Inc. subsidiary between January 1989 and January 1994. In November 1995, settlements of class actions in Minnesota and Alabama and an action by the FTC were approved. The provision balance is deemed adequate to satisfy the settlements in these matters, as well as the costs and expenses reasonably estimable with regard to the other pending matters. 64 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Bausch & Lomb Incorporated In our opinion, the accompanying consolidated financial statements appearing on pages 43 through 64 of this 1995 annual report of Bausch & Lomb Incorporated present fairly, in all material respects, the financial position of Bausch & Lomb Incorporated and its subsidiaries at December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Rochester, New York January 23, 1996 except as to the last paragraph of Note 8 - Provision For Income Taxes which is as of February 15, 1996 - - -------------------------------------------------------------------------------- REPORT OF GOVERNANCE To Bausch & Lomb Shareholders The board of directors adopted a set of governing principles in mid-1994 establishing how the board is to fulfill its role in overseeing the affairs of the Company. These principles include the following procedures: The board, through its committee on directors, regularly reviews the size of the board, the mix of inside and outside directors (the majority are to be outside directors), the selection of new candidates for membership, and sets the compensation of board members. Additionally, there is a process for the evaluation of the overall effectiveness of the board as a whole and board members are also asked to evaluate their performance as directors. The board formally evaluates the performance of the Chief Executive Officer and receives a report from management on succession planning and management development, all on an annual basis. Outside directors meet in executive session without members of management once each year. These and other principles are reviewed on a regular basis to assure their relevance to the needs of the Company and the interests of shareholders. Bausch & Lomb Incorporated and Consolidated Subsidiaries 65 Selected Financial Data - - --------------------------------------------------------------------------------
Dollar Amounts In Millions - Except Per Share Data 1995 1994* 1993* - - -------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR Net sales $1,932.9 $1,892.7 $1,830.1 Earnings from continuing operations before cumulative effect of change in accounting principle 112.0 31.1 138.9 Cumulative effect of change in accounting principle -- -- -- Net earnings 112.0 31.1 138.9 Earnings from continuing operations before cumulative effect of change in accounting principle and non-recurring charges** 108.6 106.1 175.4 Average shares outstanding (000s) 57,852 59,739 60,115 - - -------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Earnings from continuing operations before cumulative effect of change in accounting principle $ 1.94 $ 0.52 $ 2.31 Cumulative effect of change in accounting principle -- -- -- Net earnings 1.94 0.52 2.31 Earnings from continuing operations before cumulative effect of change in accounting principle and non-recurring charges** 1.88 1.78 2.92 Shareholders' equity 16.32 15.50 15.38 Dividends 1.01 0.955 0.88 - - -------------------------------------------------------------------------------------------------------------------------- AT YEAR END Working capital $ 70.9 $ 277.4 $ 669.6 Property, plant and equipment 550.4 542.8 541.1 Total assets 2,550.1 2,457.7 2,493.0 Short-term debt 383.5 300.6 244.6 Long-term debt 191.0 289.5 321.0 Shareholders' equity 929.3 914.4 909.2 - - -------------------------------------------------------------------------------------------------------------------------- STATISTICS Before Cumulative Effect Of Change In Accounting Principle: Return on sales 5.8% 1.6% 7.6% Return on average shareholders' equity 11.9% 3.2% 15.5% Return on average total assets 4.5% 1.2% 6.8% Before Cumulative Effect Of Change In Accounting Principle And Non-recurring Charges**: Return on sales 5.6% 5.6% 9.6% Return on average shareholders' equity 11.5% 11.0% 19.5% Return on average total assets 4.3% 4.1% 8.6% Average income tax rate 36.9% 52.6% 33.5% Current ratio 1.1 1.4 1.9 Total debt to shareholders' equity 61.8% 64.5% 62.2% Total debt to capital 38.2% 39.2% 38.3% Capital expenditures $ 95.5 $ 84.8 $ 107.2 Employees 14,000 14,400 15,900 Common shareholders of record 8,100 9,100 8,100 ===========================================================================================================================
*Amounts have been restated for certain items as more fully described in Note 2 -- Restatement Of Financial Information. **Non-recurring charges include restructuring charges, gains on divestiture of businesses and goodwill impairment charges. 66 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - --------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986 1985 - - ------------------------------------------------------------------------------------------------------------------------- $1,709.1 $1,520.1 $1,368.6 $1,220.3 $978.3 $840.3 $698.9 $596.2 171.4 85.9 131.4 114.4 97.9 85.3 74.7 66.8 -- (58.3) -- -- -- -- -- -- 171.4 27.6 131.4 114.4 97.9 85.3 74.7 66.8 171.4 149.2 131.4 114.4 97.9 85.3 74.7 66.8 60,399 60,455 60,150 60,435 59,894 60,758 60,578 59,922 - - ------------------------------------------------------------------------------------------------------------------------- $ 2.84 $ 1.42 $ 2.19 $ 1.89 $ 1.63 $ 1.40 $ 1.23 $ 1.11 -- (0.96) -- -- -- -- -- -- 2.84 0.46 2.19 1.89 1.63 1.40 1.23 1.11 2.84 2.47 2.19 1.89 1.63 1.40 1.23 1.11 15.11 13.77 13.95 11.96 10.55 9.70 8.16 6.84 0.80 0.72 0.66 0.58 0.50 0.43 0.39 0.39 - - ------------------------------------------------------------------------------------------------------------------------- $ 514.9 $ 405.3 $ 341.9 $ 316.3 $ 217.3 $ 372.4 $ 348.5 $ 260.0 503.9 457.9 418.8 351.0 294.3 226.5 205.6 150.9 1,873.7 1,738.5 1,677.4 1,429.2 1,212.6 978.7 885.7 627.3 208.9 256.1 285.2 228.2 184.7 18.6 22.1 21.4 277.7 195.7 214.5 219.1 152.5 160.5 206.9 81.3 898.2 819.3 825.5 713.3 629.0 576.6 490.8 408.1 - - ------------------------------------------------------------------------------------------------------------------------- 10.0% 5.7% 9.6% 9.4% 10.0% 10.2% 10.7% 11.2% 20.3% 10.3% 17.2% 17.5% 16.6% 15.9% 16.6% 18.7% 9.5% 5.0% 8.5% 8.7% 8.9% 9.2% 9.9% 11.2% 10.0% 9.8% 9.6% 9.4% 10.0% 10.2% 10.7% 11.2% 20.3% 17.7% 17.2% 17.5% 16.6% 15.9% 16.6% 18.7% 9.5% 8.7% 8.5% 8.7% 8.9% 9.2% 9.9% 11.2% 32.4% 39.7% 32.6% 32.6% 33.3% 36.8% 33.8% 33.8% 1.9 1.7 1.6 1.7 1.6 3.1 3.1 3.2 54.2% 55.1% 60.5% 62.7% 53.6% 31.1% 46.7% 25.2% 35.1% 35.5% 37.7% 38.5% 34.9% 23.7% 31.8% 20.1% $ 119.3 $ 88.6 $ 108.4 $ 100.3 $ 103.1 $ 49.4 $ 50.3 $ 34.1 14,500 13,700 13,000 12,500 10,000 8,300 8,000 7,600 7,700 8,400 6,900 6,700 7,100 6,200 6,300 6,500 =========================================================================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries 67 Divisions And Subsidiaries - - -------------------------------------------------------------------------------- The Americas --- United States Arnette Optic Illusions, Inc. San Clemente, California (2) Bausch & Lomb Lamex, Inc. Miami, Florida (2) Bausch & Lomb Oral Care Division Rochester, New York (2) Bausch & Lomb Pharmaceutical Division Tampa, Florida (1) Charles River Laboratories, Inc. Hollister, California (1) Summerland Key, Florida (1) Windham, Maine (1) Wilmington, Massachusetts (1) Portage, Michigan (1) O'Fallon, Missouri (1) Omaha, Nebraska (1) Pittsfield, New Hampshire (1) Newfield, New Jersey (1) Stone Ridge, New York (1) Raleigh, North Carolina (1) Charleston, South Carolina (1) Oregon, Wisconsin (1) Contact Lens Division Rochester, New York (1) Sarasota, Florida (1) Lynchburg, Virginia (1) East Acres Biologicals Southbridge, Massachusetts (1) Eyewear Division Oakland, Maryland (1) Rochester, New York (1) San Antonio, Texas (1) Dahlberg, Inc. Golden Valley, Minnesota (1) Outlook Eyewear Company Broomfield, Colorado (1) Personal Products Division Rochester, New York (1) Greenville, South Carolina (1) Polymer Technology Corporation Wilmington, Massachusetts (1) Revo, Inc. Sunnyvale, California (1) SPAFAS Preston, Connecticut (1) Storrs, Connecticut (1) Gainsville, Georgia (1) Roanoke, Illinois (1) Reinholds, Pennsylvania (1) Steri-Oss, Inc. Yorba Linda, California (1) Thin Film Technology Division Rochester, New York (1) Wilmington Partners, L.P. Wilmington, Massachusetts Canada Bausch & Lomb Canada, Inc. Toronto, Ontario (2) Montreal, Quebec (2) Charles River Canada, Inc. St. Constant, Quebec (1) Latin America & Caribbean Basin --- Bermuda Bausch & Lomb (Bermuda) Limited Hamilton Brazil BL Industria Otica, Ltda. Rio de Janeiro (2) Cornealent Waicon do Brasil Industria e Comercio, Ltda Porto Allegre (1) Rio de Janeiro (2) Colombia Bausch & Lomb de Colombia S.A. Bogota (2) Mexico Operadoro de Contactologia S.A. de C.V. Mexico City (1) Puerto Rico Bausch & Lomb Puerto Rico, Inc. San Juan (2) Venezuela Bausch & Lomb Venezuela, C.A. Caracas (2) 68 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------------------------------------------------------------------------------- Europe --- Austria Bausch & Lomb G.m.b.H. Vienna (2) Denmark Bausch & Lomb Danmark A/S Copenhagen (2) Finland OY Bausch & Lomb Finland A.B. Helsinki (2) France Bausch & Lomb France S.A. Le Mesnil St. Denis (2) Charles River France S.A. Lyons (1) St. Aubin-les-Elbeuf (1) Iffa Credo S.A. L' Arbresle Cedex (1) Germany Charles River WIGA G.m.b.H. Extertal Bosingfeld (1) Kisslegg (1) Sulzfeld (1) Dr. Gerhard Mann, Chem.-Pharm.Fabrik G.m.b.H. Berlin (1) Great Britain Europe, Middle East & Africa Division London (2) Bausch & Lomb U.K., Ltd. London (2) Charles River U.K., Ltd. Margate (1) Madden & Layman Limited St. Leonards-on-Sea (1) Greece Bausch & Lomb International, Inc. Athens (2) Italy Bausch & Lomb-IOM S.p.A. Milan (1) Rome (2) Charles River Italia S.p.A. Calco (1) Netherlands Bausch & Lomb B.V. Heemstede (2) Bausch & Lomb Holdings B.V. Norway Bausch & Lomb Norway A/S Oslo (2) Portugal Bausch & Lomb Espana S.A. Lisbon (2) Republic Of Ireland Bausch & Lomb Ireland Waterford (1) Scotland Award, plc Livingston (1) Spain Bausch & Lomb Espana S.A. Barcelona (1) Madrid (2) Criffa, S.A. Barcelona (1) Sweden Bausch & Lomb Svenska A.B. Stockholm (2) Switzerland Bausch & Lomb A.G. Bern (2) Bausch & Lomb Distops S.A. Geneva (2) Bausch & Lomb Fribourg S.A. Fribourg Bausch & Lomb Finance Lausanne Turkey Bausch & Lomb Saglik ve Optik Urunleri Tic.A.S. Istanbul (2) Asia & Pacific --- Australia Bausch & Lomb (Australia) Pty. Ltd. Sydney (2) Hong Kong Asia-Pacific Division (2) Bausch & Lomb (Hong Kong) Ltd. (1) Bausch & Lomb-Lord Company (Hong Kong) Ltd. (2) India Bausch & Lomb India Limited New Delhi (1) Japan B.L.J. Company Ltd. Toyko (2) Charles River Japan, Inc. Atsugi (1) Hino (1) Tskuba (1) Yokohama (2) Malaysia Bausch & Lomb (Malaysia) Sdn. Bhd. West Malaysia (2) New Zealand Bausch & Lomb (New Zealand) Limited Auckland (2) People's Republic Of China Bausch & Lomb China, Inc. Beijing (1) Guangzhou (1) Philippines Bausch & Lomb Asia-Pacific Division Manila (2) Republic Of China Bausch & Lomb Taiwan Limited Taipei, Taiwan (1) Singapore Bausch & Lomb (Sinagpore) Private Limited (2) Bausch & Lomb Far East, P.T.E South Korea Bausch & Lomb Korea, Ltd. Seoul (1) (1) Manufacturing and Production (2) Direct Marketing and Sales Bausch & Lomb Incorporated and Consolidated Subsidiaries 69 Directors And Officers - - -------------------------------------------------------------------------------- Board of Directors --- William H. Waltrip (1) Chairman and Chief Executive Officer Bausch & Lomb Director since 1985 Franklin E. Agnew (1) (3) Business Consultant Pittsburgh, Pennsylvania Director since 1982 William Balderston III (1) (4) Executive Vice President (Retired) The Chase Manhattan Bank Rochester, New York Director since: 1989 Bradford R. Boss (3) Chairman of the Board A.T. Cross Company (a manufacturer of writing instruments) Lincoln, Rhode Island Director since: 1986 Jay T. Holmes (1) Executive Vice President and Chief Administrative Officer Bausch & Lomb Director since: 1986 Ruth R. McMullin (3) Management Fellow Yale School of Management New York, New York Director since: 1987 John R. Purcell (1) (4) Chairman and Chief Executive Officer Grenadier Associates, Ltd. (a venture banking firm) Juno Beach, Florida Director since: 1976 Linda Johnson Rice (2) President and Chief Operating Officer Johnson Publishing Company, Inc. Chicago, Illinois Director since: 1990 Alvin W. Trivelpiece, Ph.D. (2) (4) Director Oak Ridge National Laboratory and President Lockheed Martin Energy Research Corporation (a science and energy research laboratory) Oak Ridge, Tennessee Director since: 1989 Kenneth L. Wolfe (2) Chairman of the Board and Chief Executive Officer Hershey Foods Corporation (a food products manufacturing company) Hershey, Pennsylvania Director since: 1989 Committee Memberships: (1) Executive Committee (2) Audit Committee (3) Committee on Management (4) Committee on Directors Officers --- William H. Waltrip Chairman and Chief Executive Officer 3 months of service with the Company William M. Carpenter President and Chief Operating Officer 1 year of service with the Company Jay T. Holmes Executive Vice President and Chief Administrative Officer 15 years of service with the Company Senior Vice Presidents: Henry L. Foster, D.V.M. Charles River Laboratories, Inc. 12 years of service with the Company James C. Foster Charles River Laboratories, Inc. 12 years of service with the Company Stephen A. Hellrung Secretary and General Counsel 14 years of service with the Company James E. Kanaley Personal Products Division and Global Business Manager Lens Care Products 18 years of service with the Company Alex Kumar International Operations 10 years of service with the Company Stephen C. McCluski Finance 8 years of service with the Company Thomas M. Riedhammer, Ph.D. Worldwide Pharmaceutical, Surgical and Hearing Care Products 14 years of service with the Company Carl E. Sassano Contact Lens Division and Global Business Manager Contact Lens Products 23 years of service with the Company Deborah K. Smith Human Resources 1 year of service with the Company Vice Presidents: Alan P. Dozier U.S. Pharmaceuticals 11 years of service with the Company Dwain L. Hahs Europe, Middle East & Africa Division 19 years of service with the Company James T. Horn Asia-Pacific Division 4 years of service with the Company Franklin T. Jepson Communications and Investor Relations 17 years of service with the Company Barbara M. Kelley Public Affairs 13 years of service with the Company Jurij Z. Kushner Controller 15 years of service with the Company James F. Milton Japan 25 years of service with the Company W. Jeff Pontius Eyewear Division 1 year of service with the Company Alan H. Resnick Treasurer 23 years of service with the Company Robert F. Thompson Polymer Technology Corporation 13 years of service with the Company James J. Ward Audit Services 19 years of service with the Company Assistant Secretary: Jean F. Geisel 20 years of service with the Company 70 Bausch & Lomb Incorporated and Consolidated Subsidiaries [Back cover] Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 Telephone: (716) 338-6000 (800) 344-8815 Bausch & Lomb 1995 Annual Report Printed in U.S.A. M-1918-95 [Front Cover] Our 1995 Annual Report ***** OUR VALUES AND OUR VISION BAUSCH & LOMB Healthcare and Optics Worldwide [Inside Front cover] Bausch & Lomb In Brief Business Segment Revenues Bausch & Lomb competes in selected segments of global healthcare and optical markets where it is advantaged with superior technology, low production costs and widely recognized brand names. From Continuing Product Lines HEALTHCARE 71% OPTICS 29% Business Segment Earnings Before Restructuring From Continuing Product Lines HEALTHCARE 80% OPTICS 20% THE HEALTHCARE SEGMENT The Healthcare Segment consists of three strategic sectors. Personal Health Sector The Personal Health Sector is comprised of branded products purchased by consumers in health and beauty aid sections of pharmacies, food stores and mass merchandise outlets. They include contact lens care solutions; oral care, eye care and skin care products; and non-prescription medications. Medical Sector The Medical Sector consists of contact lenses, ophthalmic pharmaceuticals, hearing aids and dental implants sold to healthcare professionals who in turn dispense them to consumers. Biomedical Sector The Biomedical Sector is made up of products and services used in the research and development of pharmaceuticals and the production of genetically engineered materials. These include purpose-bred research animals, bioprocessing services and products derived from specific pathogen- free eggs. THE OPTICS SEGMENT The Optics Segment consists primarily of premium-priced sunglasses sold under such internationally recognized brand names as Ray-Ban, Arnette, Revo and Liz Claiborne. BAUSCH & LOMB WORLDWIDE Indicative of Bausch & Lomb's worldwide span, regions outside the U.S. represent 49% of corporate revenues. Manufacturing or marketing organizations have been established in approximately 35 countries, and the Company's products are distributed in more than 70 other nations. Bausch & Lomb has approximately 14,000 employees and is headquartered in Rochester, New York. Sector Information Percent Of Total Sales From Continuing Product Lines PERSONAL HEALTH 36% MEDICAL 25% BIOMEDICAL 10% OPTICS 29% [Inside Back Cover] Corporate Information Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 Telephone: (716) 338-6000 (800) 344-8815 Requests For Information: Shareholders: In addition to its annual report, the Company makes available copies of its proxy statement and its Form 10-K. Quarterly Reports: In an effort to provide more timely information to all shareholders, and as part of the Company's continuing efforts to reduce costs, Bausch & Lomb mails quarterly news releases on financial results to investors who have requested this information and makes them available by fax at (800) 356-0837. However, printed quarterly reports are not sent routinely to all shareholders. If your shares are registered directly with the Company or in the name of a broker or other nominee and you would like to receive quarterly communications to shareholders, you may receive this information without charge by written request to the Investor Relations Department at the address listed above. Security analysts and shareholders seeking information concerning Company operations, shareholder programs or dividend policy may contact: Investor Relations Telephone (716) 338-6025 Bausch & Lomb conducts presentations throughout the year for institutional investors and securities analysts. The following locations will be among those where presentations are conducted in the near future: Boston, Chicago, London, New York, Paris and San Francisco. For more information, contact the Investor Relations department. Shareholders seeking information regarding their individual accounts or dividend payments may contact our stock transfer agent: The First National Bank of Boston Telephone (800) 730-4001 News Media: News media representatives and others seeking general information should contact the Corporate Communications Department. Telephone (716) 338-8064 Annual Meeting Of Shareholders Shareholders are invited to attend the Company's annual meeting which will be held on Friday, May 10, 1996 at 10:30 a.m. The Meeting will be conducted in the Grand Ballroom of the Hyatt Regency Hotel located at 125 East Main Street, Rochester, New York. Dividend Record And Payment Dates Bausch & Lomb generally pays dividends on or about the first day of April, July, October and January. Dividends will be paid to shareholders of record on March 10, 1996, June 1, 1996, September 1, 1996 and December 1, 1996. Dividend Reinvestment And Stock Purchase Plan The Dividend Reinvestment and Stock Purchase Plan is available to shareholders of Bausch & Lomb Common stock, and is an efficient and economical method for building investment in the Company. Under the plan, shareholders may 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 Bausch & Lomb shares. All plan expenses, including brokerage commissions and service charges, are paid by Bausch & Lomb. Shareholders desiring additional information on these services should contact: The First National Bank of Boston Shareholder Services Mail Stop: 45-02-09 P.O. Box 644 Boston, MA 02102-0644 Registrar And Transfer Agent The First National Bank of Boston Transfer Processing Mail Stop: 45-02-05 P.O. Box 644 Boston, MA 02102-0644 Stock Listing The Common stock of the corporation is traded under the symbol BOL on the New York Stock Exchange. Options on the Company's Common stock are traded on the American Stock Exchange. Trademarks: The trademarks of Bausch & Lomb Incorporated and its subsidiary companies referred to in this report are: Activ, Arnette, Bausch & Lomb, Betamann, Bio-Esthetic, Boston, Boston 7, Boston Advance, Boston ES, Boston Simplicity, Clear Choice, Crolom, Curel, Dr. Mann Pharma, Endosafe, Envision, Floxal, Gold Medalist, Interplak, Lotemax, Marathon, Medalist, Medalist 66, Miracle-Ear, Mirage, Moisture Drops, Muro Ocugel, Occasions, Opcon-A, Optima FW, OptiPranolol, Orbs, Predator, Ray-Ban, ReNu, Revo, Revo Shapes, Revo Travellers, SeeQuence 2, Sensitive Eyes, Sidestreet, Silsoft, Soft Sense, SofLens66, Steri-Oss, Tobrex, Vividrin, Vivimed, Viviplus, Vivivit, Vivivit Multi, Wayfarer, xrays Killer Loop is a trademark of Killer Loop S.p.A. Liz Claiborne is a trademark of Liz Claiborne, Inc. U.S.A. Design Meyer Design Associates, Inc. Wilton, CT Major Photography Ted Kawalerski New York City Product Photography Ron Wu Rochester, NY (C) 1996 Bausch & Lomb Incorporated All Rights Reserved Worldwide 50% Total Recovered Fiber 10% Post-Consumer Recycled Fiber [Back cover] Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 Telephone: (716) 338-6000 (800) 344-8815 BAUSCH & LOMB 1995 ANNUAL REPORT Printed in U.S.A. M-1918-95 BAUSCH & LOMB Healthcare and Optics Worldwide EX-22 8 EXHIBIT 22 EXHIBIT 22 SUBSIDIARIES OF BAUSCH & LOMB INCORPORATED As of December 30, 1995
Jurisdiction Under Name Which Organized Bausch & Lomb AG Switzerland Bausch & Lomb (Australia) Pty. Ltd. Australia B.L.J. Company Ltd. Japan Bausch & Lomb BV Netherlands Bausch & Lomb (Bermuda) Limited Bermuda Bausch & Lomb Bermuda Finance Limited Bermuda Bausch & Lomb Canada, Inc. Canada Charles River Laboratories, Inc. Delaware BL Industria Otica, Ltda. Brazil Bausch & Lomb China, Inc. Delaware Bausch & Lomb Colombia, S.A. Colombia Bausch & Lomb Danmark A/S Denmark Bausch & Lomb Espana, S.A. Spain Bausch & Lomb Finance S.A. Switzerland Oy Bausch & Lomb Finland AB Finland Bausch & Lomb Foundation, Inc. New York Bausch & Lomb France, S.A. France Bausch & Lomb Fribourg S.A. Switzerland Bausch & Lomb GmbH Austria Bausch & Lomb Holdings BV Netherlands Bausch & Lomb (Hong Kong) Limited Hong Kong Bausch & Lomb-Lord, Co. (Hong Kong) Limited Hong Kong Bausch & Lomb (Ireland) Ireland Bausch & Lomb India Limited India Bausch & Lomb IOM/SpA Italy Bausch & Lomb Korea, Inc. Korea Bausch & Lomb Lamex, Inc. Delaware Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia Dr. Mann Pharma Germany Dahlberg, Inc. Minnesota Bausch & Lomb New Zealand, Ltd. New Zealand Bausch & Lomb Norge A/S Norway Operadora de Contactologia S.A. de C.V. Mexico Outlook Eyewear Company Delaware Bausch & Lomb Opticare, Inc. New York Bausch & Lomb Oral Care Division, Inc. Georgia Bausch & Lomb Pharmaceuticals, Inc. Delaware Polymer Technology Corporation New York Bausch & Lomb Puerto Rico, Inc. Puerto Rico Bausch & Lomb Realty Corporation New York Revo, Inc. Delaware Bausch & Lomb (Singapore) Private Ltd. Singapore Steri-Oss Inc. California Bausch & Lomb Svenska AB Sweden Bausch & Lomb Taiwan Limited Taiwan Bausch & Lomb Turkey Turkey Bausch & Lomb U.K. Limited England Bausch & Lomb Venezuela C.A. Venezuela Cornealent Waicon do Brasil Industria e Comercio, Ltda. Brazil Wilmington Partners L.P. Massachusetts Windmill Investors Netherlands
EX-24 9 EXHIBIT 24 EXHIBIT (24) REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Bausch & Lomb Incorporated Our audits of the consolidated financial statements referred to in our report dated January 23, 1996, except as to the last paragraph of Note 8 - Provision for Income Taxes which is as of February 15, 1996, appearing on page 65 of the 1995 Annual Report to Shareholders of Bausch & Lomb Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10- K) also included an audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Rochester, New York January 23, 1996 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-56066, 2-85158, 33-15439 and 33-35667) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33- 51117) of Bausch & Lomb Incorporated of our report dated January 23, 1996, except as to the last paragraph of Note 8 - - - Provision for Income Taxes which is as of February 15, 1996, appearing on page 65 of the 1995 Annual Report to Shareholders of Bausch & Lomb Incorporated which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our above report on the Financial Statement Schedule. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Rochester, New York March 28, 1996 EX-25 10 EXHIBIT 25 EXHIBIT (25) POWER OF ATTORNEY The undersigned directors of Bausch & Lomb Incorporated (the "Company"), each hereby constitutes and appoints William H. Waltrip and Jay T. Holmes, 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 30, 1995, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and the related rules and regulations thereunder, and any amendment or amendments thereto, the undersigned hereby ratifying and confirming all that said attorneys and agents, or either one of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this instrument has been executed by the undersigned as of this 27th day of February, 1996. /s/ Franklin E. Agnew /s/ John R. Purcell Franklin E. Agnew John R. Purcell /s/ William Balderston III /s/ Linda Johnson Rice William Balderston III Linda Johnson Rice /s/ Bradford R. Boss /s/ Alvin W. Trivelpiece Bradford R. Boss Alvin W. Trivelpiece /s/ Jay T. Holmes /s/ William H. Waltrip Jay T. Holmes William H. Waltrip /s/ Ruth R. McMullin /s/ Kenneth L. Wolfe Ruth R. McMullin Kenneth L. Wolfe EX-27 11 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 12-MOS QTR-4 DEC-30-1995 DEC-30-1995 DEC-30-1995 DEC-30-1995 193,814 193,814 803 803 261,819 261,819 11,232 11,232 304,298 304,298 930,347 930,347 1,082,750 1,082,750 (532,384) (532,384) 2,550,066 2,550,066 859,477 859,477 190,974 190,974 24,180 24,180 0 0 0 0 905,120 905,120 2,550,066 2,550,066 1,932,883 455,066 1,932,883 455,066 859,984 202,035 859,984 202,035 862,254 239,913 8,253 2,838 45,765 10,766 211,847 4,836 78,068 2,324 112,022 (3,365) 0 0 0 0 0 0 112,022 (3,365) 1.94 (0.04) 1.94 (0.04) Income Before Taxes and Minority Interest
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