-----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, B4du2PbeQQfrHz+ZsPnnaZh6iK7hQqlJ6PIlZN6m/xyBnSjdYDpuVjtcLs/LwKoK 57lBb2KGptUi3D1YiNojIg== 0000010427-97-000009.txt : 19970507 0000010427-97-000009.hdr.sgml : 19970507 ACCESSION NUMBER: 0000010427-97-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970327 SROS: NONE 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: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04105 FILM NUMBER: 97564476 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: 7163388444 MAIL ADDRESS: STREET 1: ONE BAUSCH & LAMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 10-K 1 1996 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 28, l996 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 March 5, 1997) of the voting stock held by non- affiliates of the registrant was $2,063,214,413. 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 March 5, 1997 was 55,457,104, consisting of 54,711,725 shares of Common Stock and 745,379 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 1996 Annual Report to Shareholders for fiscal year ended December 28, 1996 ("Annual Report"). With the exception of the pages of the Annual Report specifically incorporated by reference herein, the Annual Report is not deemed to be filed as a part of this Report on Form 10-K. Part III Bausch & Lomb Incorporated Proxy Statement, dated March 21, 1997 ("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 .............................. 6 Item 3. Legal Proceedings ....................... 9 Item 4. Submission of Matters to a Vote of Shareholders ......................... 11 PART II Item 5. Market for Bausch & Lomb Incorporated's Common Stock and Related Shareholder Matters ................................. 11 Item 6. Selected Financial Data ................. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 11 Item 8. Financial Statements and Supplementary Data ...................... 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 11 PART III Item 10. Directors and Executive Officers of Bausch & Lomb Incorporated............ 12 Item 11. Executive Compensation .................. 14 Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 14 Item 13. Certain Relationships and Related Transactions .................... 14 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K ..... . 14 Signatures .......................................... 15 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 eye care and healthcare 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 1996 are discussed below. 1996 was a challenging year for Bausch & Lomb; however, the management of the Company remains committed to improving financial performance and has initiated strategies to reduce costs and improve financial performance in 1997 and over the longer term. Reported revenues for 1996 were $1,927 million, a decrease of $6 million or less than 1% from 1995. Excluding the oral care and dental implant businesses divested in 1996 and the sports optics business divested in 1995, revenues from ongoing businesses reached $1,877 million, an increase of 2% over the $1,836 million recorded in 1995. Net earnings for 1996 amounted to $83 million, or $1.47 per share, compared to $112 million or $1.94 per share, reported in 1995. Excluding restructuring charges and gains and losses on divestitures of businesses from both periods, net earnings were $92 million or $1.62 per share in 1996, compared to $109 million or $1.88 per share in 1995. In February 1996, the Company acquired Arnette Optic Illusions, Inc., a designer, manufacturer and marketer of high- performance sunglasses and goggles, which competes in market segments where the Company was not previously represented. Also, 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 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 soft contact lens wear practical and affordable for consumers. In June 1996, the Company's board of directors approved plans to restructure portions of the eyewear and vision care segments, as well as certain corporate administrative functions and a restructuring charge of $11 million after taxes, or $0.19 per share, was recorded. These actions are part of the Company's efforts to enhance its competitive position and to reduce the annual impact of general and administrative, logistics and distribution costs. In July 1996, the Company recorded litigation provisions of $10 million after taxes, or $0.18 per share, in connection with the proposed settlement of a class action lawsuit. In November 1996, the court gave final approval to the settlement. In September 1996, the Company completed the sale of its Oral Care Division to Conair Corporation. The Oral Care Division marketed the Interplak line of power toothbrushes for plaque removal. The Company recorded an after-tax loss of $6 million or $0.11 per share on the sale. In October 1996, the Company's board of directors approved a leadership transition plan in which William M. Carpenter, the Company's president and chief operating officer, became chief executive officer on January 1, 1997, replacing William H. Waltrip, who is continuing as chairman. In November 1996, the Company completed the sale of its dental implant business to a group of investors sponsored by Finisterre Capital Partners. The Company recorded an after-tax gain of $8 million or $0.15 per share on the sale. In December 1996, the Company's Management Executive Committee announced plans to adopt a new financial management system to measure and drive the Company's performance. The system, called Economic Value Added (EVA), will be implemented for 1997. EVA is a tool which simply yet effectively combines earnings and capital management objectives into one index. It aligns business decisions made by the Company with shareholder expectations that capital is being utilized effectively. 3 Also in December 1996, the Company announced its realignment of businesses into new segments for the purpose of reporting its financial results. The four new segments, vision care, eyewear, pharmaceuticals and healthcare, reflect the Company's strategic emphasis on eye care. (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 22-26 and 41- 42 of the Annual Report which are incorporated herein by reference. (c) NARRATIVE DESCRIPTION OF BUSINESS Bausch & Lomb's operations have been classified into four industry segments: vision care, eyewear, pharmaceuticals and healthcare. Below is a description of each segment and information to the extent that it is material to an understanding of the Company's business taken as a whole. In addition, pages 9- 20 of the Annual Report are incorporated herein by reference. Vision Care The vision care segment includes contact lenses, lens materials and lens care products. Vision care products are marketed through licensed eye care professionals, pharmaceutical retailers and mass merchandisers by the Company's own sales force and distributors. Eyewear The eyewear segment includes premium-priced sunglasses and optical thin film coating services. Eyewear products are distributed worldwide through distributors, wholesalers and manufacturer's representatives. These products are marketed through optical stores, sunglass specialty stores, department stores, catalog showrooms, mass merchandisers, sporting goods stores and, in the case of optical thin films, to a variety of industrial customers. Pharmaceuticals The pharmaceuticals segment manufactures and sells generic and proprietary prescription pharmaceuticals, with a strategic emphasis in the ophthalmic field, and over-the-counter (OTC) medications. These products are distributed through the Company's sales force and distributors to pharmacies, drug stores, food stores, mass merchandisers and hospitals. Healthcare Included in this segment are businesses which provide purpose-bred laboratory animals, pathogen-free eggs, biomedical products and services, skin care products and hearing aids. Hearing aids are distributed primarily through the Miracle-Ear franchise system and Company-owned stores. Biomedical products are sold through the Company's own sales force to the scientific research community. Skin care products are sold through the Company's sales force and distributors to drug stores, food stores and mass merchandisers. Raw Materials and Parts; Customers Materials and components in all four of the Company's industry segments are purchased from a wide variety of suppliers and the loss of any one supplier would not adversely affect the Company's business to a significant extent. No material part of the Company's business taken as a whole is dependent upon a single or a few customers. However, in the eyewear segment approximately 15% of segment sales are attributable to Sunglass Hut International and in the vision care segment approximately 10% of segment sales are attributable to Wal-Mart. Patents, Trademarks & Licenses While in the aggregate the Company's patents are of material importance to its businesses taken as a whole, no single patent or patent license or group of patent licenses relating to any particular product or process is material to any industry segment. The Company actively pursues technology development and acquisition as a means to enhance its competitive position in its business segments. In the vision care segment, Bausch & Lomb has developed significant consumer and eye care professional recognition of products sold under the Bausch & Lomb, ReNu, Sensitive Eyes, SeeQuence, 4 Medalist, Boston, Optima FW and SofLens66 trademarks. Ray-Ban, Revo, Wayfarer, Arnette and Killer Loop are trademarks receiving substantial consumer recognition in the eyewear segment. Bausch & Lomb and Dr. Mann are trademarks receiving substantial consumer recognition in the pharmaceuticals segment. In the healthcare segment, Miracle-Ear, Mirage, Curel, Soft Sense and Charles River are trademarks receiving significant consumer and industry professional recognition. Seasonality and Working Capital Some seasonality exists for sunglasses in the eyewear segment. The accumulation of inventories of such products in advance of expected shipments reflects the seasonal nature of the products. In general, the working capital practices followed in each of the Company's industry segments are typical of those businesses. Competition Each industry is highly competitive in both U.S. and non- U.S. markets. In all of its segments, Bausch & Lomb competes on the basis of product performance, quality, technology, price, service, warranty and reliability. In the eyewear segment, the Company also competes on the basis of style. Research and Development Research and development constitutes an important part of Bausch & Lomb's activities. In 1996, the Company's research and development expenditures totaled $75 million, as compared to $66 million in 1995 and $60 million in 1994. 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 1996 and are not anticipated to be material for 1997 or 1998. Number of Employees Bausch & Lomb employed approximately 13,000 persons as of December 28, 1996. (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 41 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, 1997 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. EYEWEAR Manufacturing Plants Beijing, China(2) Bhiwadi, India Waterford, Ireland (2) Oakland, MD Rochester, NY (Frame Center) San Antonio, TX New Territories, Hong Kong (2) Nuevo Laredo, Mexico (2) Distribution Centers San Clemente, CA (2) Sunnyvale, CA (2) San Antonio, TX Richmond Hill, Ontario, Canada (2) Guangzhou, China (2) Hoofdorp, Netherland (2) HEALTHCARE Manufacturing Plants Golden Valley, MN (1) Kitchener, Ontario, Canada (2) Distribution Centers Wilmington, MA (2) Golden Valley, MN (1) Reinholds, PA (2) Production Facilities Hollister, CA (2) Lebanon, CT Preston, CT Storrs, CT Voluntown, CT Summerland Key, FL Colbert, GA (2) Benson, IL Eureka, IL Secore, IL Roanoke, IL Washburn, IL Windham, ME Southbridge, MA (2) West Brookfield, MA (2) Wilmington, MA Portage, MI O'Fallon, MO Raleigh, NC Pittsfield, NH Newfield (Lakeview), NJ Stone Ridge (Kingston), NY Charleston, SC (2) Houston, TX Oregon, WI Brussels, Belgium St. Constant, Canada Margate, England West Sussex, England Lyons, France (2) St. Aubin-les-Elbeuf, France St. Germain, France (2) Extertal, Germany Kisslegg, Germany Sulzfeld, Germany Calco, Italy Atsugi, Japan Hino, Japan Tskuba, Japan (2) Tuhuacan, Mexico (2) Someren, Nethlands (Healthcare Production Facilities continued) Barcelona, Spain(2) Uppsala, Sweden (2) 6 PHARMACEUTICALS Manufacturing Plants Tampa, FL Berlin, Germany Distribution Centers Tampa, FL VISION CARE Manufacturing Plants Sarasota, FL (1) Wilmington, MA (2) Rochester, NY (Optics Center) (1), (2) Greenville, SC Porto Alegre, Brazil Beijing, China (2) Bhiwadi, India Waterford, Ireland (2) Milan, Italy Umsong-Gun (Seoul), Korea Livingston, Scotland (2) Barcelona, Spain Hastings, United Kingdom Distribution Centers Rochester, NY (Optics Center) (1), (2) Greenville, SC (2) Lynchburg, VA (2) Richmond Hill, Ontario, Canada (2) Guangzhou, China Hoofdorp, Netherlands (2) Livingston, Scotland (2) CORPORATE FACILITIES Rochester, NY One Bausch & Lomb Place (2) Optics Center (1),(2) 1295 Scottsville Road (2) [FN] (1) This facility is financed under a tax-exempt financing agreement. (2) This facility is leased. Bausch & Lomb considers that its facilities are suitable and adequate for the operations involved. All facilities are being productively utilized. 7 ITEM 3. LEGAL PROCEEDINGS 1. 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 agreed to consolidate the actions and plaintiffs have filed a third-amended consolidated complaint. 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 all shareholders who purchased shares between June 4, 1994 and January 25, 1995. In October 1996, the court denied in substantial part the Company's and the individual officers' motions to dismiss. The Company and individual officers have filed motions for reconsideration of the October 1996 order or, in the alternative, certification of the order pursuant to 28 U.S.C. Section 1292 (b). Discovery has not yet commenced in this consolidated action. A motion by plaintiffs to certify the alleged class is pending. 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 accounting for sunglass sales in its Asia-Pacific Division in the period from late 1992 through early 1994. 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. An adverse outcome could result in the filing of civil proceedings by the SEC against the Company seeking injunctive relief, or administrative proceedings seeking a cease and desist order. 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. On November 26, 1996, the court gave final approval to a settlement, under which consumers who purchased Medalist lenses between January 1, 1991 through December 31, 1995, Optima FW lenses between November 1, 1990 through December 31, 1995 and Criterion Ultra FW lenses between November 1, 1990 through April 30, 1996 were eligible to participate. The Company recorded a charge against third quarter earnings which, in addition to existing litigation reserves, is deemed adequate to satisfy the costs of the settlement. Additionally, on May 2, 1996 and October 3, 1996, the Company was served with statements of claim filed in Ontario and British Columbia, Canada, respectively, naming the Company and Bausch & Lomb Canada. The plaintiffs seek to represent a class of Canadian consumers alleging similar claims. Another action filed in California state court in October 1994 raising substantially similar claims has been resolved. A working group of state attorneys general, representing the interests of eighteen states, also requested documents regarding the Company's pricing, labeling and advertising of these lenses. 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 products. 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. 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 dismissed their actions in other states. Another action, which was filed by a separate group of plaintiffs' attorneys in state court in California, was voluntarily dismissed. Management 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 8 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 $1.0 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 and Tennessee state courts. The complaints make similar allegations and seek similar relief on behalf of consumers outside the State of Florida. In December 1996, the New York State Attorney General, on behalf of itself and approximately twenty-one other states, filed a substantially similar action in the United States District Court for the Eastern District of New York and has sought consolidation with the pending action. The Company defends its policy as a lawfully adopted means of insuring effective distribution of its products and safeguarding consumers' health. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS Inapplicable. 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 31, 34 and 58, respectively, of the Annual Report are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The table entitled "Selected Financial Data" on pages 58 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 22-34 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 35-57 and 34, respectively, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF BAUSCH & LOMB INCORPORATED Information with respect to non-officer directors is included in the Proxy Statement on pages 3-7 and such information is incorporated herein by reference. Set forth below are the names, ages (as of March 1, 1997), 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 (59) Chairman since January 1997; Chairman and Chief Executive Officer (1996); Chairman of Technology Solutions Company since 1993; Chief Executive Officer, Technology Solutions Company (1993-1995); Chairman and Chief Executive Officer of Biggers Brothers, Inc. (1991-1993). William M. Carpenter (44) Chief Executive Officer since January 1997; President and Chief Operating Officer (1995-1996); Executive Vice President, Global Business Manager, Eyewear (1995- July 1996); President and Chief Executive Officer, Reckitt & 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). Daryl M. Dickson (45) Senior Vice President, Human Resources since November 1996; Vice President Human Resources (snacks/cereal group), Quaker Oats Company (1993-1996); Sector Director Management and Organization Development, Allied Signal Aerospace Division, Allied Signal Inc. (1991-1993). James C. Foster (46) 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). Michael T. Gillen (38) Vice President and President, U.S. Eyewear since June 1996; President and Chief Executive Officer of Dahlberg/Miracle Ear, a subsidiary of the Company (1994-June 1996); Vice President and General Manager, ADVO, Inc. (1990- 1994). Dwain L. Hahs (44) Senior Vice President, International Operations since September 1996; Vice President and President Europe, Middle East and Africa Division (1994-1996); Vice President Field Operations Europe, Middle East and Africa Division (1992-1994); Vice President Marketing International Division (1989-1992). 10 Stephen A. Hellrung (49) Senior Vice President since March 1995; Secretary since December 1994; Vice President and General Counsel (1985-1994). James E. Kanaley (55) (Retirement Date June 30, 1997.) Senior Vice President since 1985 and President North American Vision Care since June 1996; Global Business Manager, Lens Care Products (1994-1996); President, Personal Products Division (1987-1996). Stephen C. McCluski (44) Senior Vice President, Finance since February 1995; Vice President and Controller (1994); President, Outlook Eyewear Company (1992-1994); Vice President, Controller, Eyewear Division (1989-1992). W. Jeff Pontius (40) Vice President and Global Business Manager, Eyewear since July 1996; Vice President and President, Eyewear (1996); President, U.S. Ray Ban Eyewear (1995-1996); Vice President Marketing, Reckitt & Colman, Inc., (1993-1995); Vice President, Brand Management, Reckitt & Colman, Inc. (1993); Category Director, Hard Surface, Reckitt & Colman, Inc. (1992- 1993); Plant Manager, Royston, Georgia, Johnson & Johnson (1989- 1992). Thomas M. Riedhammer (48) 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). Carl E. Sassano (47) Executive Vice President and President, Bausch & Lomb Vision Care since January 1997; Senior Vice President and Global Business Manager, Vision Care (1996); Global Business Manager, Contact Lens Products (1994-1996); Senior Vice President and President Contact Lens Division (1994-1996); Senior Vice President and President of Polymer Technology Corporation, a subsidiary of the Company (1992-1994); Vice President and President of Polymer Technology Corporation (1986-1992). Jurij Z. Kushner (46) 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). All officers serve on a year-to-year basis through the day of the annual meeting of shareholders of the Company, and there is no arrangement or understanding among any of the officers of the Company and any other persons pursuant to which such officer was selected as an officer. 11 ITEM 11. EXECUTIVE COMPENSATION The portions of the "Executive Compensation" section entitled "Report of the Committee on Management", "Compensation Tables" and "Defined Benefit Retirement Plans", the second and third paragraphs of the section entitled "Board of Directors", the graph entitled "Comparison of Five Year Cumulative Total Shareholder Return" and the second paragraph of the section entitled "Related Transactions, Employment Contracts and Termination of Employment and Change in Control Arrangements" included in the Proxy Statement on pages 10-13, 14-15, 17-18, 1, 16 and 18, respectively, are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement on page 8 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The first paragraph of the section entitled "Related Transactions, Employment Contracts and Termination of Employment and Change of Control Arrangements" on page 18 of the Proxy Statement is incorporated herein by reference. 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 57 Balance Sheet at December 28, 1996 and December 31, 1994 36 For the years ended December 28, 1996, December 30, 1995 and December 31, 1994: Statement of Earnings 35 Statement of Cash Flows 37 Notes to Financial Statements 38-57 2. Filed herewith Report of Independent Accountants on Financial Statement Schedules Exhibit (24) For the years ended December 28, 1996, December 30, 1995 and December 31, 1994: 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. 12 (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)-gg 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. 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 27, 1997 By:/s/William M. Carpenter William M. Carpenter 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 27, 1997 By:/s/William M. Carpenter William M. Carpenter Chief Executive Officer Principal Financial Officer Date: March 27, 1997 By:/s/ Stephen C. McCluski Stephen C. McCluski Senior Vice President, Finance Controller Date: March 27, 1997 By:/s/ Jurij Z. Kushner Jurij Z. Kushner, Vice President and Controller Directors Franklin E. Agnew William Balderston III William M. Carpenter Domenico De Sole Jonathan S. Linen Ruth R. McMullin John R. Purcell Linda Johnson Rice Alvin W. Trivelpiece William H. Waltrip Kenneth L. Wolfe Date: March 27, 1997 By:/s/Stephen A. Hellrung Stephen A. Hellrung Attorney-in-Fact S-1 Bausch & Lomb Incorporated SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserves for Doubtful Accounts (Dollar amounts December 28, December 30, December 31, in thousands) 1996 1995 1994 _____________________________________________________________ Balance at $ 11,232 $ 16,830 $ 13,753 beginning of year Activity for the year: Provision charged 8,556 8,253 8,007 to income (Reductions)/ (399) (821) 1,769 additions resulting from (divestiture)/ acquisition activity Accounts written (6,899) (10,194) (7,696) off Recoveries on 788 634 997 accounts previ- ously written off Reclassifi- -- (3,470) -- cations Balance at end $ 13,278 $ 11,232 $ 16,830 of year Represents reserves related to trade receivables which have been reclassified to Notes Receivable. Results have been restated as more fully described in Note 2 - - - "Restatement of Financial Information".
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 Change of Control Employment Agreement with certain officers of the Company (filed herewith). (10)-c 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)-d Amendment to the Bausch & Lomb Incorporated Executive Incentive Compensation Plan (filed as Exhibit (10)-c to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1996, File No. 1-4105 and incorporated herein by reference). E-2 (10)-e Amendment to the Bausch & Lomb Incorporated Executive Incentive Compensation Plan (filed herewith). (10)-f 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). (10)-g 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)-h 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)-i 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)-j 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)-k 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)-l Amendment to the Bausch & Lomb Incorporated Management Executive Incentive Plan (filed as Exhibit (10)-l to the Company's Annual Report on Form 10-K for fiscal year ended December 30, 1995. (10)-m Amendment to the Bausch & Lomb Incorporated Management Executive Incentive Plan (filed herewith). (10)-n 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)-o Amendment to the Bausch & Lomb Supplemental Management Executive Incentive Plan (filed as Exhibit (10)-l to the Company's Annual Report on Form 10-K for fiscal year ended December 30, 1995, File No. 1-4105, and incorporated herein by reference). (10)-p 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)-q 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)-r 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)-s 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)-t 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)-u 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). E-3 (10)-v 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). (10)-w 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)-x 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)-y The 1990 Stock Incentive Plan of Bausch & Lomb Incorporated, as amended (filed herewith). (10)-z 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)-aa 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)-bb The Bausch & Lomb Incorporated Director Deferred Compensation Plan, as restated (filed herewith). (10)-cc The Bausch & Lomb Incorporated Executive Deferred Compensation Plan, as restated (filed herewith). (10)-dd Annual Retainer Stock Plan for Non-Employee Directors (filed herewith). (10)-ee 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)-ff 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)-gg 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 1996 Annual Report to Shareholders for the fiscal year ended December 28, 1996 (filed herewith). With the exception of the pages of the Annual Report specifically incorporated by reference herein, the Annual Report is not deemed to be filed as a part of this Report on Form 10-K. (21) Subsidiaries (filed herewith). (23) Report of Independent Accountants on Financial Statement Schedules and Consent of Independent Accountants (filed herewith). (24) Power of attorney with respect to the signatures of directors in this Report on Form 10-K (filed herewith). (27) Financial Data Schedule (filed herewith). EX-10 2 EXHIBIT (10)-B Exhibit (10)-b CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between Bausch & Lomb Incorporated, a New York corporation (the "Company"), and _________________ (the "Executive"), dated as of _________________. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 2) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the second anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (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 election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is less than 35 miles from such location; provided that, if the Executive was employed at the headquarters of the Company immediately preceding the Effective Date, such office shall be the headquarters of the Company. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. (A) In addition to Annual Base Salary, the Executive shall be paid, for each fiscal year ending during the Employment Period, a regular annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) bonus paid or payable, including by reason of any deferral, to the Executive by the Company under the Company's Executive Incentive Compensation Plan (or any predecessor or successor plan thereto) in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (the "Recent Average Bonus"; the highest such annualized bonus paid or payable to the Executive in respect of such three fiscal years shall be hereinafter referred to as the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (B) In addition to Annual Base Salary and the Annual Bonus, the Executive shall be paid, for each performance cycle ending during the Employment Period, a long-term bonus (the "Long-Term Bonus") in cash at least equal to the average long-term incentive bonus (the "Recent Long-Term Bonus"), if any, paid or payable in cash or shares of stock of the Company to the Executive by the Company under the Company's Long-Term Incentive Program (or any predecessor or successor plan thereto) (the "LTIP") in respect of the last three completed performance cycles ending with the performance cycle ending in the fiscal year preceding the fiscal year in which the Change of Control Date occurs (or, if less, in respect of the number of completed performance cycles for which the Executive has received a long-term bonus). If the Executive was not a participant in the LTIP in one or more of such completed cycles, but is, at the Change of Control Date, a participant in the LTIP, the Recent Long-Term Bonus shall be equal to (1) the sum of the Standard Award(s) (as defined in the LTIP) for each cycle in which the Executive is participating at the Change of Control Date, assuming a Salary Midpoint for the Third Year of Award Cycle (as such term is used in the LTIP) equal to the Annual Base Salary at the Change of Control Date, divided by (2) the number of performance cycles in which the Executive was participating at such time. Each such Long- Term Bonus shall be paid pursuant to a plan which has three- year performance cycles following those of the LTIP and is otherwise substantially similar to the LTIP and shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Long-Term Bonus is awarded, unless the Executive shall elect to defer the receipt of such Long-Term Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits and Perquisites. During the Employment Period, the Executive shall be entitled to fringe benefits and perquisites in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Executive of the Executive's obligations under Section 4(a) (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason or (ii) during the Window Period by the Executive without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Effective Date. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B); (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c), provided that such successor has received at least ten days prior written notice from the Company or the Executive of the requirements of Section 11(c). For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period, in lieu of the obligations of the Company under Section 4 for the remainder of the Employment Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) any amounts required to be paid under Section 4 through the Date of Termination not theretofore paid, including, without limitation, the Executive's Annual Base Salary through the Date of Termination, (2) the product of (x) the greater of (I) the Annual Bonus paid or payable, including by reason of any deferral, to the Executive (and annualized for any fiscal year consisting of less than twelve full months or for which the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, (the "Current Bonus"), and (II) the Recent Average Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, such product to be reduced by any amount paid to the Executive following the Effective Date pursuant to Section 7.0 of the Company's Executive Incentive Compensation Plan (or any successor plan) as a result of the termination of the Executive's employment, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the greater of the Highest Recent Bonus and the Current Bonus; provided, however, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, policy or arrangement of the Company; and C. a separate lump-sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount") equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Bausch & Lomb Retirement Benefits Plan (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (a "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) for two years following the Date of Termination, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Effective Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; provided, however, that if all or a portion of such Supplemental Retirement Amount, to the extent relating to a SERP, is funded through a trust of which the Executive is a beneficiary, the Supplemental Retirement Amount to such extent shall be paid from such trust; and D. a separate lump-sum supplemental retirement benefit (the amount of such benefit shall be hereinafter referred to as the "SERP Payment") in discharge of the Company's obligations under the SERP equal to the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90- day period immediately preceding the Effective Date) of the Executive's benefit accrued through the Date of Termination under the SERP; provided, however, that to the extent such amount is funded through a trust of which the Executive is a beneficiary, such amount to the extent so funded shall be paid from such trust; and (ii) for two years following the Date of Termination, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the two year period following the Date of Termination and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, in lieu of the obligations of the Company under Section 4 for the remainder of the Employment Period, the Company shall provide for (i) payment of Accrued Obligations and the SERP Payment (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Death Benefits"). (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, in lieu of the obligations of the Company under Section 4 for the remainder of the Employment Period, the Company shall provide for (i) payment of Accrued Obligations and the SERP Payment (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, in lieu of the obligations of the Company under Section 4 for the remainder of the Employment Period, the Company shall, within 30 days following the Date of Termination, pay to the Executive any unpaid Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, in lieu of the obligations of the Company under Section 4 for the remainder of the Employment Period, the Company shall, within 30 days following the Date of Termination, pay to the Executive all Accrued Obligations and the SERP Payment and pay or provide all Other Benefits on a timely basis. 7. Non-exclusivity of Rights. Except as provided in Sections 6(a)(ii), 6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the auditors for the Company for the fiscal year in which the Change of Control occurs (the "Accounting Firm") who shall provide detailed supporting calculations, together with a written opinion with respect to the accuracy of such calculations, both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Effective Date) as accountant or auditor for the individual, entity or group effecting the Change of Control or any affiliate thereof, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30- day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Bausch & Lomb Incorporated One Bausch & Lomb Place Rochester, New York 14604-2701 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. BAUSCH & LOMB INCORPORATED By: ___________________________ William M. Carpenter President and Chief Executive Officer By: __________________________ EX-10 3 EXHIBIT (10)-E Exhibit (10)-e Restated 7/31/96 THE EXECUTIVE INCENTIVE COMPENSATION PLAN 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; manager, 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 if 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 inventive 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 scheduled. 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 years. 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 of Directors 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 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 25% 75% Managers Staff Officers 75% 25% Corporate Staff 50% 50% Participants Division or Group 25% or 75% Presidents 25% Division or Global 50% or 50% Business Participants 50%
4.1 The "Organizational Performance Management System" (OPMS) has been established to evaluate corporate, division, global business, and profit center performance for the 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 goals. The fourth and fifth goals 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 participant's supervisors 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 calculated as follows: The standard bonus (see Section 3.1) is divided into appropriate corporation/unit individual components (as defined in Section 4.0). For 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. 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. 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 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 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: the participant's employment is terminated involuntarily other than for good cause, or the Plan is terminated. The amount of the ward 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 election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 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 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 reserves the right to interpret, amend, modify or terminate the existing program in accordance with changing. 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:_________________________ JEAN F. GEISEL ASSISTANT SECRETARY AGREED to this ____ day of __________, 1996. EX-10 4 EXHIBIT (10)-M Exhibit (10)-m As amended and restated 2/27/96 THE MANAGEMENT EXECUTIVE INCENTIVE PLAN 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 President 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 inventive 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 Officer 65 President and Chief Operating Officer 55 Executive Vice President and Chief Administrative Officer 50 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 long 10% 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 the 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 calculated as follows: The standard award is calculated by multiplying the participant's period salary by the standard percentage set forth in Section 3.1. 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. The percentage factor is ten multiplied times the standard bonus. 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 years. 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: The participant's employment is terminated involuntarily other than for good cause, or 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 election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 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 the Section in a way which 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 portions 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:_____________________________ DEBORAH K. SMITH SENIOR VICE PRESIDENT HUMAN RESOURCES AGREED to this ____ day of __________, 1996. EX-10 5 EXHIBIT (10)-Y Exhibit (10)-y THE BAUSCH & LOMB INCORPORATED 1990 STOCK INCENTIVE PLAN AND RELATED INFORMATION This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933 July 24, 1990 Amended by the Committee on Management December 9, 1996 INTRODUCTION The 1990 Stock Incentive Plan (the "Plan") was adopted by the Company's Board of Directors on February 27, 1990, and subsequently was approved by the Company's shareholders at the 1990 Annual Meeting, which was held on April 24, 1990. Under the Plan, shares of the Company's Class B stock, as well as options to purchase such stock, may be awarded to directors, officers and other key employees. The Plan is intended to advance the interests of the Company and its shareholders by providing to those individuals upon whose judgment, initiative and efforts the conduct of the Company's business largely depends an incentive to continue their service with the Company and/or its subsidiaries. In recognition of your contributions to the Company, you have been selected to receive an award under the Plan. To enable you to better understand how the Plan works, we have attached a copy of the Plan, as well as certain supplemental information concerning the Plan and the awards made thereunder. Please read all parts of this document carefully. As explained in Section 3 of the Plan, the Plan is administered by the Compensation Committee of the Board of Directors, which is now called the Committee on Management ("Committee"). The Committee consists of at least three directors, and is elected annually by the entire Board of Directors. In addition to its specific authority with respect to implementation of the Plan, the Committee has the general responsibility for recommending to the Board remuneration for the Chairman of the Board, the President and directors, and determining the remuneration of other corporate officers. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 and is not a qualified plan under Section 401(a) of the Internal Revenue Code. To obtain more information about the Plan and its administrators, contact Stephen A. Hellrung, Vice President and General Counsel, Bausch & Lomb Incorporated, One Lincoln First Square, Rochester, New York 14601-0054 (telephone (716) 338-6000). 1990 STOCK INCENTIVE PLAN BAUSCH & LOMB INCORPORATED 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to advance the interests of Bausch & Lomb Incorporated, a New York corporation (referred to herein as the "Company"), and its shareholders by providing an incentive for its directors, officers and other key employees who are primarily responsible for the management of the business to continue service with the Company and its subsidiaries. By encouraging such directors, officers and other key employees to become owners of Common Stock of the Company, the Company seeks to attract and retain people of experience, ability and training and to furnish additional incentive to directors, officers and other key employees upon whose judgment, initiative and efforts the successful conduct of its business largely depends. It is intended that this purpose will be effected through the granting of stock options and stock awards (sometimes collectively referred to as "grants") as provided herein. 2. Effective Date. The effective date of the Plan shall be the date the Plan is approved by the shareholders of the Company. 3. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (referred to herein as the "Committee"), which shall consist of at least three directors, none of whom, while serving on such Committee, shall be, or within one year prior thereto have been, eligible to receive any grants hereunder, except as specifically authorized under Section 14 of the Plan. The Committee shall have authority to adopt rules and regulations for carrying out the Plan, select the employees to whom grants will be made, determine the number of shares to be optioned or awarded to each such employee and interpret, construe and implement the provisions of the Plan. Decisions of the Committee shall be binding on the Company and on all persons eligible to participate in the Plan. 4. Stock Subject to the Plan. Subject to adjustment as provided in Sections 9 and 10, the total number of shares of the $.08 par value Class B Stock of the Company available for grant under the Plan in each calendar year (including partial calendar years) during which the Plan is in effect shall be equal to three percent (3%) of the total number of shares of Common Stock of the Company outstanding as of the first day of each such year for which the Plan is in effect; provided that any shares available for grant in a particular calendar year (or partial calendar year) which are not, in fact, granted in such year shall not be added to the shares available for grant in any subsequent calendar year. In addition to the limitation set forth above with respect to the number of shares available for grant in any single calendar year, no more than three million (3,000,000) shares of Class B Stock shall be cumulatively available for the grant of incentive options over the life of the Plan. Shares subject to an option or award under the Plan may be authorized and unissued shares or may be "treasury shares" as defined in Section 102(a)(14) of the New York Business Corporation Law. Approval by a majority vote of the shareholders of the Company shall constitute authorization to use such Class B shares for the purposes of the Plan. Any shares subject to an option or award which for any reason expires or is terminated unexercised as to such shares may again be subject to an option or award under the Plan. 5. Eligible Persons. Options and awards may be granted only to directors, officers and other key employees of the Company or any subsidiary corporation of the Company. Except as expressly authorized by Section 14 of the Plan, however, no grant shall be made to a director who is not an officer or salaried employee. Further, no grant shall be made to an individual who as a result of such grant would own stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Company or a subsidiary. Stock which such individual may purchase under outstanding options, whether incentive or nonqualified, shall be treated as stock owned by such individual for purposes of this Section. 6. Stock Options. It is intended that options granted hereunder to officers and other employees of the Company shall be, at the discretion of the Committee, either "incentive options," under the provisions of Section 422A of the Internal Revenue Code of 1986 and the regulations thereunder or corresponding provisions of subsequent revenue laws and regulations in effect at the time such options are granted hereunder, or nonqualified options. Incentive options shall be granted within ten (10) years from the effective date of the Plan and shall be evidenced by stock option agreements in such form as the Committee shall approve from time to time, which agreements shall conform with the Plan and shall contain in substance the following terms and conditions: (a) Number of Shares. The option agreement shall specify the number of shares to which it pertains. (b) Purchase Price. The purchase price per share of stock under each option shall be 100% of the fair market value of such stock on the day the option is granted, which shall be deemed to be the mean between the highest and lowest quoted selling prices of the Company's Common Stock on the New York Stock Exchange (or other composite quoted market) on that day (or, if there were no such sales on such day, on the next preceding day on which there were such sales). The purchase price of an option shall not be reduced during its term (except as provided in Section 9 or 10 hereof). (c) Exercise. No option shall be exercisable after the expiration of ten (10) years from the date such option is granted. Except as provided in Section 14 of the Plan, each such option may be exercised at such time and in such manner as specified by the Committee, which may, among other things, provide that options may become subject to exercise in installments. Except as provided in Section 13 hereof, no option may be exercised at any time unless the holder thereof is then an employee or director, as applicable, of the Company or one of its subsidiaries. An individual electing to exercise an option under the Plan shall give written notice of such election to the Company. (d) Payment; Loans. The purchase price of any stock purchased pursuant to the exercise of an option granted hereunder shall be payable in full on the exercise date in cash or by check or by surrender of shares of Class B Stock or Common Stock of the Company registered in the name of the optionee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so surrendered shall be deemed to have a value per share equal to the fair market value of a share of Common Stock on such date. Notwithstanding any other provision of this Plan, the exercise price of an option (or any portion thereof) shall not be payable by surrender of Class B Stock or Common Stock of the Company registered in the name of the optionee unless the shares to be so surrendered have been held for such period of time and in such manner as may be required by generally accepted accounting principles in order to prevent the exercise of such option to be deemed additional cash compensation to the optionee chargeable against the earnings of the Company. Subject to the approval of the Committee, or of such person to whom the Committee may delegate such authority (its "designee"), the Company may loan to the optionee a sum equal to an amount which is not in excess of 100% of the purchase price of the shares so purchased, such loan to be evidenced by the execution and delivery of a promissory note; provided, however, that a designee shall have no authority to approve loans to himself. Approval of the Plan by a majority vote of the shareholders of the Company shall constitute authorization under Section 714 of the New York Business Corporation Law for any loan made hereunder (including loans made pursuant to Section 14(d) of the Plan) to any director of the Company. Interest shall be paid on the unpaid balance of the promissory note at such times and at such rate as shall be determined by the Committee. Such promissory note shall be secured by the pledge to the Company of shares having an aggregate purchase price on the date of purchase equal to or greater than the amount of such note. An optionee shall have, as to such pledged shares, all rights of ownership including the right to vote such shares and to receive dividends paid on such shares, subject to the security interest of the Company. Such shares shall not be released by the Company from the pledge unless the proportionate amount of the note secured thereby has been repaid to the Company; provided, however, that shares subject to a pledge may be used to pay all or part of the purchase price of any other option granted hereunder or under any other stock incentive plan of the Company under the terms of which the purchase price of an option may be paid by the surrender of shares, subject to the terms and conditions of this Plan relating to the surrender of shares in payment of the exercise price of an option. In such event, that number of the newly purchased shares equal to the shares previously pledged shall be immediately pledged as substitute security for the pre-existing debt of the optionee to the Company, and thereupon shall be subject to the provisions hereof relating to pledged shares. All notes executed hereunder shall be payable at such times and in such amounts and shall contain such other terms as shall be specified by the Committee or its designee or stated in the option agreement; provided, however, that such terms shall conform to requirements contained in any applicable regulations which are issued by any governmental authority. If employment of the optionee terminates for any reason other than death, disability or retirement, any unpaid balance remaining on any such promissory note shall become due and payable upon not less than three months' notice from the Company, which notice may be given at any time after such termination; provided, however, that such unpaid balance shall without notice, demand or presentation become due and payable in any event five years following the date of such termination. Notwithstanding any other provision of this section, in the event that an optionee's employment is terminated within two years after a Change in Control (as defined in Section 7(b)(3)), any unpaid balance remaining on any such promissory note shall be due and payable five years from the date of the Change in Control. In the case of termination of employment due to disability or retirement, any unpaid balance on such promissory note shall become due and payable five years from the date of such termination. Notwithstanding the above, in the case of death, at any time, of an employee who has delivered a promissory note to the Company hereunder, any unpaid balance remaining on such note on the date of his death shall without notice, demand or presentation become due and payable one year from such date. "Retirement" as used herein shall mean early or normal retirement as defined in the Company's retirement program. (e) Rights as a Shareholder. The individual shall have no rights as a shareholder with respect to any shares covered by his grant until the date of issuance to him of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock is issued. (f) Maximum Value of Shares. The aggregate fair market value of stock (determined at the time the option is granted) with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year, under this or any other incentive stock option plan of the Company or its subsidiaries, shall not exceed $100,000. (g) Non-Transferability of Rights. No grant shall be transferable by the individual except by will or the laws of descent or distribution. During the life of an individual, the grant shall be exercisable only by him or his guardian or legal representative. Nonqualified options shall be evidenced by stock option agreements in such form as the Committee shall approve from time to time, which agreements shall indicate that the options are not incentive options, shall conform with the Plan and shall contain in substance the terms and conditions specified in parts (a), (c), (d), (e), and (g) of this Section 6, plus such other terms and conditions as the Committee shall designate. Except as provided in Section 14 of the Plan, the purchase price per share of stock under a nonqualified option shall be determined by the Committee, in its discretion; provided, however, that the purchase price shall in no case be less than the par value of the shares subject to the option. Notwithstanding the provisions of Section 6(g) the individual may also transfer grants of non- qualified stock options to members of the individual's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the individual's immediate family and/or charitable institutions pursuant to such conditions and procedures as the Committee may establish. Any transfer permitted hereunder shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made on a gratuitous or donative basis and without consideration (other than nominal consideration). Without in any way limiting the authority of the Committee to make grants hereunder, and in order to induce officers and other key employees to retain ownership of shares in the Company, the Committee shall have the authority (but not an obligation) to include within any option agreement a provision entitling the optionee to a further option (a "Re-load Option") in the event the optionee exercises the option evidenced by the option agreement, in whole or in part, by surrendering other shares of the Company in accordance with this Plan and the terms and conditions of the option agreement. Any such Re-load Option shall be for a number of shares equal to the number of surrendered shares, shall become exercisable in the event the purchased shares are held for a minimum period of time not less than three years, and shall be subject to such other terms and conditions as the Committee may determine. 7. Alternate Rights. The Committee may, in its discretion, award alternate rights to any officer or director who is also an employee of the Company who is subject to Section 16(b) of the Securities Exchange Act of 1934, in conjunction with incentive stock options or nonqualified stock options then being granted to him or her, or to be attached to one or more such options theretofore granted and at the time held unexercised by such officer or director, which shall entitle such individual to receive payment from the Company in accordance with the terms of the alternate right so awarded. The alternate rights set forth in Subsections (a) and (b) herein shall be subject to such terms and conditions as the Committee shall determine from time to time. (a) Stock Appreciation Rights (1) An alternate right granted under this Subsection (a) (an "SAR") may be made part of an option at the time of its grant or at any time thereafter up to six months prior to the expiration of the option. (2) An SAR will entitle the holder to elect to receive, in lieu of exercising the option to which it relates, an amount (in cash or in Common Stock, or a combination thereof, all in the sole discretion of the Committee) equal to 100% of the excess of: (A) the fair market value per share of the Company's Common Stock on the date of exercise of such SAR, multiplied by the number of shares with respect to which the SAR is being exercised, over (B) the aggregate option price for such number of shares. (3) An SAR will be exercisable only to the extent that it has a positive value and the option to which it relates is exercisable. (4) Notwithstanding the foregoing, no SAR shall be exercisable (i) during the first six months after the date of its grant, or (ii) if any related stock option was exercised during the first six months after the date of its grant; provided, however, that the limitations contained in this paragraph (4) shall not apply in the event death or disability of the grantee occurs prior to the expiration of the six-month period. (5) Upon exercise of an SAR, the option (or portion thereof) with respect to which such SAR is exercised shall be surrendered and shall not thereafter be exercisable. (6) Exercise of an SAR will reduce the number of shares purchasable pursuant to the related option and available under the Plan to the extent of the number of shares with respect to which the SAR is exercised. (b) Accelerated Rights. (1) An alternate right granted under this Subsection (b) (an "Accelerated Right") may be made part of an option at the time of its grant or at any time up to six months prior to its expiration, and shall provide the optionee with the rights specified in Subsection (b) (2) below. (2) Upon the occurrence of a Change in Control (as defined in Subsection (b) (3) below), all options to which an Accelerated Right is attached (i) shall become immediately and fully exercisable and (ii) unless the Committee shall determine otherwise at the time of grant, will entitle the holder, in lieu of exercising the option, to elect to surrender all or part of the option to the Company, provided that written notice of the election (the "Election") is given to the Company within the sixty (60) day period from and after the Change in Control (the "Election Period"). Upon making such an Election, the holder shall be entitled to receive in cash, within thirty (30) days of such Election, an amount equal to the amount by which the Change in Control Price (as defined in Subsection (b) (4) below) per share of the Company's Common Stock on the date of such Election shall exceed the exercise price per share of stock under the option, multiplied by the number of shares of stock granted under the option as to which the Accelerated Right shall have been exercised (such excess referred to herein as the "Aggregate Spread"); provided, however, that if the option to which the Accelerated Right is attached is held by an individual subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the Election provided for herein shall not be made prior to six months from the date of grant of the Accelerated Right. Notwithstanding any other provision of the Plan, if the end of the Election Period is within six months of the date of grant of an Accelerated Right held by an individual subject to Section 16 of the Exchange Act, the option to which the Accelerated Right is attached shall be canceled in exchange for a cash payment equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Accelerated Right. (3) "Change in Control" shall mean (i) the acquisition by any individual, partnership, firm1 corporation, association, trust, unincorporated organization or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act (a "person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the Company's outstanding shares of stock having general voting rights, or (ii) individuals who currently constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board. (4) In the event of a Change in Control under Subsection (b) (3) (ii) above, "Change in Control Price" shall mean the highest reported sales price of a share of Common Stock on the Composite Tape for New York Stock Exchange Listed Stocks (the "Market High") during the sixty (60) day period prior to and ending on the date of the Change in Control. If the Change of Control is the result of a transaction or series of transactions described in Subsection (b) (3) (i) above, the "Change in Control Price" shall mean the higher of (i) the highest price per share of the Common Stock paid in such transaction or series of transactions by the person having made the acquisition, and (ii) the Market High as determined above. Notwithstanding the foregoing, with respect to any incentive option, the Change in Control Price shall not exceed the market price of a share of Common Stock (to the extent required by Section 422A of the Internal Revenue Code of 1986, as amended) on the date of surrender thereof. 8. Stock Grants. The Committee may make a grant, evidenced by such written agreement as the Committee shall, from time to time, prescribe, to any officer or other key employee consisting of a specified number of shares of the Company's Class B Stock, as defined in Section 4 ("Stock Grants"). A Stock Grant shall be neither an option nor a sale. The Committee, in its discretion, shall decide whether any Stock Grant shall be subject to certain conditions and restrictions, in which case appropriate written notice of the conditions and restrictions shall be set forth in the document effecting the grant ("Restricted Stock"). Restricted Stock shall be subject to the following conditions and restrictions. (a) Restricted Stock may not be sold or otherwise transferred by the employee until ownership vests at such time and in such manner as specified by the Committee. (b) Restricted Stock may be offered for sale to the Company after all conditions are fulfilled and all restrictions lapse, and the Company shall be obligated to purchase all shares so offered at the then fair market value of the Company's Common Stock or, at the Company's sole discretion, to issue in exchange for any or all such Restricted Stock the equivalent number of shares of the Company's Common Stock. (c) The Company may at any time exchange any shares of Class B Stock held as Restricted Stock for an equivalent number of shares of its Common Stock encumbered by the same restrictions as those shares exchanged, in which case an appropriate restrictive legend shall be affixed to the Common Stock certificate(s). (d) If the holder of Restricted Stock shall die while still in the employ of the Company or a subsidiary prior to the lapse of restrictions, the Company shall be obligated to purchase all such shares at the then fair market value of its Common Stock if and as offered by the employee's executor. (e) Except as provided in Section 8(d) or as otherwise determined by the Committee, all rights and title to Restricted Stock granted to a participant under the Plan shall terminate and be forfeited upon termination of the participant's employment with the Company or other failure to fulfill all conditions and restrictions applicable to such Restricted Stock. (f) Except for the restrictions set forth herein and those specified by the Committee, a holder of Restricted Stock shall possess all the rights of a holder of the Company's Class B Stock. All other provisions of the Plan not inconsistent with this Section shall apply to Stock Grants or the holder thereof, as appropriate, unless otherwise determined by the Committee. In addition, a grantee may elect to have a portion of the stock otherwise issuable to him or her pursuant to a Stock Grant withheld in order to satisfy applicable Federal, state and local withholding tax requirements, provided that such election complies with the following: (1) The election shall be submitted to the Company in writing and shall be irrevocable; (2) The value of the shares subject to the withholding election shall not exceed the maximum marginal tax rate to which the grantee is subject in connection with the Stock Grant; and (3) If made by an individual subject to Section 16 of the Exchange Act, the election shall be made during the 10-day period beginning on the third business day following the date of release of the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date or, as an alternative in the case of a Restricted Stock Grant, at least six months prior to the lapse of the restrictions. For purposes of the foregoing, the shares withheld shall be deemed to have a value per share equal to the fair market value of the shares on the date the tax liability arises, and any balance due on the liability shall be payable in cash or by delivery of a check. 9. Recapitalization. In the event there is any recapitalization in the form of a stock dividend, distribution, split, subdivision or combination of shares of Common Stock of the Company, resulting in an increase or decrease in the number of Common shares outstanding, and there is not a corresponding recapitalization in the Class B shares, the number of Class B shares then available for grants or options under the Plan or covered by then outstanding grants or options or authorized pursuant to Section 14 of the Plan shall not change. However, in such a case, proportionate adjustment shall be made in the number of shares of Common Stock the aggregate value of which will determine the purchase price of a Class B share or which are exchangeable by the Company for a Class B share. In the event there is a recapitalization resulting in an increase or decrease in the number of Common shares outstanding and there is a corresponding increase or decrease in the number of Class B shares outstanding, the number of Class B shares available or authorized under the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares covered by each outstanding grant or option and the price per share thereof in each such grant or option shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price. 10. Reorganization. If, pursuant to any reorganization, sale or exchange of assets, consolidation or merger, outstanding Class B Stock is or would be exchanged for other securities of the Company or of another company which is a party to such transaction, or for property, any option or other award under the Plan theretofore granted shall apply to the securities or property into which the Class B Stock covered thereby would have been changed or for which such Class B Stock would have been exchanged had such Class B Stock been outstanding at the time. In any of such events, the total number and class of shares then remaining available for issuance under the Plan (including shares reserved for outstanding options and awards and shares available for future grant of options or other award under the Plan or authorized under Section 14 hereof) shall likewise be adjusted so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by the Plan immediately prior to such event. 11. Transfer of Certain Shares. In addition to any other restrictions hereunder, Class B shares issued pursuant to this Plan may not be conveyed, transferred, or encumbered, except as follows: (a) Such shares may be pledged to the Company under Section 6(d) of the Plan. (b) Subject to any security interest of the Company in such shares as established under Section 6(d) of the Plan, such shares may be transferred by will or by the laws of descent or distribution, or may be transferred by gift to members of an employee's family or their descendants or to trusts solely for their benefit. (c) Such shares may be offered for sale to the Company at any time by a grantee, his legal representative or transferee or such other person who acquires such shares by bequest or inheritance. The Company shall be obligated to purchase all shares so offered at the current fair market value of the Company's Common Stock on the date of such offer, provided, however, that the Company may, in its discretion, issue in exchange for any or all Class B shares so offered an equivalent number of shares of the Company's Common Stock and provided further that the portion of any loan secured by such shares under Section 6(d) has been fully paid on the date of such offer or is paid forthwith. Upon demand by the Company at any time, the Company may exchange any shares of Class B Stock outstanding which are in the possession of the Company as collateral security for a note executed under Section 6(d) of the Plan for an equivalent number of shares of its Common Stock, which Common Stock shall be held by the Company as collateral security on the same basis as the Class B Stock was held. 12. General Restriction- Each grant shall be subject to the requirement that if at any time the Board of Directors shall determine, in its reasonable discretion, that the listing, registration or qualification of the shares subject to such grant upon any securities exchange or under any state or federal law, or that the consent or approval of any government regulatory body, is necessary or advisable as a condition of, or in connection with, such grant or the issue or purchase of shares thereunder, such grant shall be subject to the condition that such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Board of Directors. 13. Termination of Employment or Director Status. (a) Incentive Stock Options. Incentive stock options, to the extent exercisable as of the termination date, may be exercised within three months of the date of termination unless such termination results from disability (as defined in Section 105(d) (4) of the Internal Revenue Code, as amended) or death, in which case such options shall be exercisable by the optionee or his legal representative, heir or devisee, as appropriate, within one year from the date of disability or death. (b) Nonqualified Stock Options. Nonqualified stock options, to the extent exercisable as of the date of termination, may be exercised within three months of the date of termination unless such termination results from death, disability (as defined in Section 105(d)(4) of the Internal Revenue Code, as amended) or retirement (as defined in the Company's retirement plan or age 65), in which case such options may be exercised by the optionee, his legal representative, heir or devisee, as appropriate, within five years from the earliest of the dates of death, disability or retirement. (c) Exercise Period Not Extended. Nothing contained in this Section 13 shall under any circumstances be interpreted as or have the effect of extending the period during which an option may be exercised beyond the terms or the expiration date provided in such option agreement or established by law or regulation. Death of an optionee subsequent to termination shall not extend such periods. Whether leave of absence shall constitute a termination of employment for purposes of the Plan shall be determined by the Committee. (d) Work in Competing Capacity. (1) Notwithstanding anything to the contrary contained in the Plan, the Committee, in its discretion, may include as a term of any employee's option agreement a proviso that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to the exercise of any option by the employee on or after the date six months prior to such termination1 an amount in cash or a certified or bank check equal to 100% of the excess of: (A) the fair market value per share of the Company's Common Stock on the date of exercise of such option, multiplied by the number of shares with respect to which the option is exercised, over (B) the aggregate option price for such number of shares. (2) Notwithstanding anything to the contrary contained in the Plan, the Committee may, in its discretion, as a condition of any Stock Grant to an employee, provide that, if the employee voluntarily terminates his or her employment with the Company or is terminated for misconduct or failure or refusal to perform his or her duties of employment (as determined by the Committee), and within a period of one year after such termination shall, directly or indirectly, engage in a competing activity (as defined below), the employee shall be required to remit to the Company, with respect to any unrestricted Stock Grant which was made or any Restricted Stock Grant which became fully vested on or after the date six months prior to such termination, the fair market value of the shares subject to such grant on the date of the grant (as to unrestricted stock) or the date of vesting (as to Restricted Stock). Such remittance shall be payable in cash or by certified or bank check or by delivery of shares of Class B Stock or Common Stock of the Company registered in the name of the grantee duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange, or by a combination of the foregoing. Any such shares so delivered shall be deemed to have a value per share equal to the fair market value of the shares on such date. (3) For purposes of this Section 13(d), an employee is deemed to be "engaged in a competing activity" if he or she owns, manages, operates, controls, is employed by, or otherwise engages in or assists another to engage in any activity or business which competes with any business or activity of the Company in which the employee was engaged or involved, or which, as of the time of the employee's termination, was in a state of research or development by any such business of the Company. (4) No provision or condition implemented by the Committee under subparagraphs (1) and (2) above shall be interpreted as or deemed to constitute a waiver of, or diminish or be in lieu of, any other rights the Company may possess as a result of the employee's direct or indirect involvement with a business competing with the business of the Company. 14. Director Stock Options. (a) Each director of the Company who is not an employee of the Company or any subsidiary shall, on the fourth Tuesday of July following the director's election at the annual meeting of shareholders (commencing with July 1990)and on the fourth Tuesday of each July thereafter during such director's term, automatically be granted nonqualified options to purchase Class B Stock at a purchase price per share determined in accordance with Subsection 6(b) of the Plan. The number of shares subject to each such option shall be equal to (i) two times the average of all compensation paid to non-employee directors, divided by (ii) the fair market value per share of the Company's Common Stock on the date of grant. The average of non-employee director compensation shall be determined by dividing the number of non- employee directors who were eligible for director stock options throughout the entire twelve (12) month period ending on the date of the Annual Meeting of the Shareholders of the Company preceding the grant (the "Calculation Year") into the aggregate compensation paid or payable (including compensation which is deferred) to all such directors with respect to services rendered to the Company as directors during the Calculation Year. A director's stock option granted hereunder shall be fully vested on the date of grant. (b) Transition grants of nonqualified options shall automatically be made to non-employee directors who are not up for election at the 1990 annual meeting of shareholders. The transition grants shall be made at the times and shall be based upon the formula set forth in Section 14(a) for the number of years remaining in such director's term following the 1990 shareholder meeting. A transition grant made hereunder shall be fully vested upon the date of grant. (c) The grants to directors provided for in this Section 14 shall in all respects supersede, and be in lieu of, any automatic grants to directors which would otherwise be made pursuant to the Company's 1987 Stock Incentive Plan, it being intended that the only options to be granted to directors shall be made pursuant to this Plan. Approval of this Plan by a majority vote of the shareholders of the Company shall constitute approval by the shareholders of the cessation of future grants to directors under the 1987 Stock Incentive Plan. (d) Automatic director stock option grants shall only be made if, as of each date of grant, the director (i) is not an employee of the Company or any subsidiary, (ii) has not been an employee of the Company or any subsidiary for any part of the preceding fiscal year, and (iii) has served on the Board of Directors continuously since the commencement of his term. (e) A director may, upon the exercise of director stock options, request that the Company loan to him a sum equal to an amount which is not in excess of 100% of the exercise price of the shares so purchased, and the loan shall be made to the director, and shall be subject to the terms and conditions set forth in Section 6(d) of the Plan, except that "retirement" shall be as defined in the Company's policy for directors. No member of the Committee shall participate in the approval of loans to himself. (f) Director stock options, as grants to directors of the Company who are subject to Section 16(b) of the Exchange Act, shall automatically include Accelerated Rights as provided for in Subsection 7(b) of the Plan. (g) In the event that the number of shares of the Company's Class B Stock available for future grant under the Plan is insufficient to make all automatic grants required to be made on such date, then all non-employee directors entitled to a grant on such date shall share ratably in the number of options on shares of the Company's Class B Stock available for grant under the Plan. (h) Except as expressly provided in this Section 14, director stock options shall be subject to the terms and conditions of Section 6 for nonqualified stock options and in accordance with the Plan. 15. Definitions. Any terms or provisions used herein which are defined in Sections 83, 421, 422A or 425 of the Internal Revenue Code of 1986 or the regulations thereunder or corresponding provisions of subsequent laws and regulations in effect at the time grants or options are made hereunder shall have the meanings as therein defined. 16. Amendment of the Plan. The Plan may at any time be terminated, modified, or amended by a majority vote of the outstanding shares of the Company having general voting power or, to the extent authorized or permitted by applicable law, rule or regulation, by the Board of Directors of the Company or the Committee. 17. Duration of the Plan. The Plan shall remain in effect until all shares subject to, or which may become subject to, the Plan shall have been conveyed pursuant to the provisions of the Plan. SUPPLEMENTAL INFORMATION CONCERNING THE 1990 STOCK INCENTIVE PLAN FEDERAL INCOME TAX CONSEQUENCES Incentive Stock Options Neither the grant nor the exercise of an incentive option will result in taxable income to the optionee. Provided that the disposition of stock acquired pursuant to the exercise of an incentive option occurs at least two years after the grant of the option and one year after the transfer of the shares upon exercise, the gain or loss realized on disposition would be treated as a long-term capital gain or loss. The gain or loss would be equal to the difference between the option price and the amount realized from the disposition. A "disqualifying disposition" occurs if stock acquired upon the exercise of an incentive option is disposed of before the expiration of either the one-year or two-year holding periods referred to above. Any amount received upon a disqualifying disposition generally will be taxable as ordinary income in the year of disposition to the extent that the lesser of (a) the fair market value of the shares on the date the option was exercised, or (b) the amount realized from such disposition, exceeds the option price. Any amount realized from a disqualifying disposition in excess of the fair market value of the shares on the date of exercise will be treated as long- or short-term capital gain, depending on the holding period of the shares. If the amount realized is less than the option price, the loss will be treated as long- or short-term capital loss, depending upon the holding period of the shares. No deduction will be allowed to the Company for federal income tax purposes upon the grant or exercise of an incentive option. At the time of a disqualifying disposition by an optionee, the Company will be entitled to a deduction for the amount taxable to the optionee as ordinary income. While it is possible to pay the option price under an incentive option with previously acquired stock of the Company, it is not possible to do so by making a series of connected option exercises. Optionees are urged to consult their own tax advisors and the Company if they contemplate using stock to pay the exercise price. Since 1983, the excess of the fair market value of stock on the date of exercise of an incentive option over the option price has been an "item of tax preference". Items of tax preference will be taken into account for purposes of the alternative minimum tax. Beginning in 1987, this tax is imposed at the rate of 21% of the alternative minimum tax base and is payable to the extent that it exceeds the regular income tax. The alternative minimum tax base is generally equal to adjusted gross income, less certain itemized deductions, less an exemption amount, plus items of tax preference. Nonqualified Stock Options No income will be recognized by an optionee at the time a nonqualified option is granted. The rules for recognizing income upon exercise of the option depend on whether the optionee is an "insider" (i.e., is subject to Section 16(b) of the Securities Exchange Act of 1934). In the case of a non-insider, ordinary income will be recognized by the optionee on the date he exercises a nonqualified stock option. The amount of income will be equal to the excess of the fair market value of the shares on the date of exercise over the option price. The holding period for capital gain and loss purposes will begin on the date of exercise. In the case of an insider, ordinary income will be recognized by the optionee on the first day on which a sale of the stock at a profit would not expose the optionee to Section 16(b) liability (the "date of taxation"). The amount of income will be equal to the excess of the fair market value of the shares on the date of taxation over the option price. The holding period for capital gain and loss purposes will begin on the date of taxation. An insider may elect to be taxed according to the rules applicable to non-insiders by filing an election with the Internal Revenue Service within 30 days from the date of exercise. The Company will be entitled to a deduction at the time that the optionee is required to recognize income from the option exercise. The deduction will be equal to the amount which is taxable to the optionee as ordinary income as a result of exercise. If the option price of a nonqualified stock option is paid by surrendering stock of the Company, the optionee will recognize no gain or loss on the shares that he surrenders to pay the option price (the "surrendered shares"). The shares that he receives upon exercise of the option in excess of the surrendered shares will be called the "additional shares". The optionee will recognize ordinary income upon the exercise equal to the fair market value of the additional shares on the date of exercise, less any cash paid toward the option price. The basis of the additional shares will be equal to their fair market value on the date of exercise, and their holding period will begin on that date. The shares that the optionee receives upon exercise equal to the surrendered shares will have a basis and holding period equal to that of the surrendered shares. Alternate Rights No income will be recognized by a recipient at the time a Stock Appreciation Right or Accelerated Right is granted. In the case of a non-insider, ordinary income will be recognized by the recipient on the date the non-insider exercises any such right. The amount of income will be equal to the sum of (a) the amount of cash received, and (b) the fair market value of the Company's stock received, determined as of the date of exercise. The holding period for capital gain and loss purposes will begin on the date of exercise. In the case of an insider, ordinary income attributable to stock received upon the exercise of a Stock Appreciation Right or Accelerated Right will be recognized on the first day on which a sale of the stock at a profit would not expose the recipient to Section 16(b) liability (the "date of taxation"). The amount of income will be equal to the fair market value of the shares on the date of taxation. The holding period for capital gain and loss purposes will begin on the date of taxation. Any cash received by an insider upon exercise of a Stock Appreciation Right will be taxed as ordinary income upon receipt. An insider may elect to be taxed according to the rules applicable to non- insiders by filing an election with the Internal Revenue Service within 30 days from the date of exercise. The Company will be entitled to a deduction at the time that the optionee is required to recognize income. The deduction will be equal to the amount which is taxable as ordinary income as a result of the exercise. Cash received pursuant to the automatic payment on an Accelerated Right due to a change in control will be taxed as ordinary income on the date it is received. Stock Awards No income will be recognized by a recipient at the time that a Restricted Stock award is made. Ordinary income will be recognized on the day when an unrestricted stock award is made or, as to Restricted Stock, when the conditions and restrictions set forth in the grant with respect to any shares of stock are fulfilled (the "date of taxation"). The amount of such income will be equal to the fair market value of the shares on the date of taxation. The holding period of the shares for capital gain and loss purposes will begin on the date of taxation. Dividend payments made with respect to a share of stock prior to the date of taxation will constitute ordinary compensation income. The Company will be entitled to a deduction equal to the amount of ordinary income recognized by the recipient of a stock award, including income resulting from dividend payments or from the fulfilling of the conditions and restrictions. Subsequent Dispositions The basis of a share acquired pursuant to the exercise of a nonqualified option, Stock Appreciation Right, or Accelerated Right, or pursuant to a stock award will be the amount included in ordinary income due to receipt of that share. When the recipient disposes of shares acquired pursuant to a nonqualified stock option, a Stock Appreciation Right, an Accelerated Right, or a stock award, any amount realized in excess of the basis of the shares will be treated as a long- or short-term capital gain, depending on the holding period of the shares. If the amount realized is less than the basis of the shares, the loss will be treated as long- or short-term capital loss, depending on the holding period of the shares. STATE INCOME TAX CONSEQUENCES New York State Income Tax Consequences The New York State income tax treatment of incentive and nonqualified stock options, Stock Appreciation Rights, Accelerated Rights and stock awards generally is the same for New York State residents as the federal income tax treatment. Ordinary income from the disqualifying disposition of incentive stock option stock, from the exercise of a nonqualified stock option, Stock Appreciation Right, or Accelerated Right, and from a stock award will be eligible for the 9% New York State maximum tax on personal service income. The item of tax preference arising from the exercise of an incentive stock option will be subject to the New York State minimum tax, and will also reduce, dollar for dollar, the income eligible for the 9% maximum tax. Other State Income Taxes Participants in the Plan should consult their tax advisors concerning the applicability of any other state law which may impose income taxes in connection with Grants and Director Stock Options under the Plan. DESCRIPTION OF BAUSCH & LOMB COMMON AND CLASS B STOCK The Company's Certificate of Incorporation authorizes the issuance of 100,000,000 shares of Common Stock, par value $.40 per share, 6,875,000 shares of Class B Stock, par value $.08 per share, 10,000 shares of 4% Cumulative Preferred Stock, par value $100 per share, and 25,000,000 shares of Class A Preferred Stock, par value $1 per share. The shares of Common Stock and of Class B Stock are equal in all respects except that the par value of the Common Stock is $.40 per share and the par value of the Class B Stock is $.08 per share, and except as otherwise specified in this paragraph. Shares of Class B Stock are issuable only under the Plan and the Company's 1975, 1982 and 1987 stock option plans. All such shares are subject to restrictions on transferability, as described in the plans. The Company's Common Stock is listed on the New York Stock Exchange, whereas the Class B Stock is not so listed. Subject to the prior payment, or declaration and setting apart for payment, of dividends on any 4% Cumulative Preferred Stock hereafter issued and to any preferred dividends to which Class A Preferred Stock hereafter issued may be entitled, the holders of the Common Stock and of the Class B Stock are entitled to receive (equally per share) such dividends as the Board of Directors may from time to time lawfully declare. The Certificate of Incorporation of the Company provides that, if any of its 4% Cumulative Preferred Stock is issued and outstanding, there shall be certain limitations upon the amount of dividends (other than stock dividends) which may be paid on any class of stock junior to such 4% Cumulative Preferred Stock (which would include both the Common Stock and the Class B Stock). The holders of Common Stock and of Class B Stock, voting together as a single class (except on such matters as to which they each may be required by law to vote separately as a class), possess the full and exclusive voting power for the election of directors and for all other purposes, except to the extent that Class A Preferred Stock hereafter issued may be granted voting rights, and subject to any rights of 4% Cumulative Preferred Stock hereafter issued to vote as to certain matters as described in the Company's Certificate of Incorporation. Each share of Common Stock and each share of Class B Stock is entitled to one vote. The shares of Common Stock and the shares of Class B Stock do not have cumulative voting rights. In the event that the Company is liquidated, dissolved or wound up, the holders of Common Stock and of Class B Stock are entitled to receive all assets available for distribution to shareholders, after there shall have been paid or set apart for the holders of any 4% Cumulative Preferred Stock and the holders of any Class A Preferred Stock the full preferential amounts to which they are entitled. The holders of Common Stock and the holders of Class B Stock have no pre-emptive rights. All such stock issued under the Plan will, when paid for in cash, be fully paid and non-assessable. Shares of Class B Stock, to the extent that they are pledged to secure loans by the Company, are considered not to be fully paid and to be assessable, but only to the extent of the amounts owed on the promissory notes secured thereby. Any amendments to or changes in the description of stock reported on documents filed by the Company pursuant to Sections 13 and 15(d) of the Securities Exchange Act of 1934 made subsequent to the date of these materials are incorporated herein by reference. RESTRICTIONS ON REOFFER OR RESALE OF COMMON STOCK These materials may not be relied upon for reoffers or resales by "affiliates" of the Company of shares of the Company's Common Stock acquired by them in exchange for shares of Class B Stock. According to the definition set forth in Rule 405 under the Securities Act of 1933, an "affiliate" of the Company is "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with" the Company. Affiliates must effect such reoffers or resales either in accordance with Rule 144 under the Securities Act of 1933 or pursuant to a separate prospectus covering such reoffer or resale. Persons who are not affiliates of the Company generally are entitled to make such reoffers or resales without such restrictions. In addition, every person who is directly or indirectly the beneficial owner of more than 10% of the outstanding shares of the Company's Common Stock and every person who is a director or officer of the Company is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, which restrict the ability of such persons to sell and purchase or purchase and sell any equity security of the Company within any period of less than six months. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by Bausch & Lomb Incorporated (the "Company") with the Securities and Exchange Commission, are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1989. 2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, and all other reports filed by the Company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since December 30, 1989. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, also shall be deemed to be incorporated by reference and to be a part of these materials from the date of filing of such documents. Upon request, the company will provide without charge to each person to whom a copy of these materials has been delivered a copy of any and all of the information that has been incorporated by reference herein, except exhibits, as well as any other document required to be delivered to participants in the Plan pursuant to Rule 42B(b) under the Securities Act of 1933. Requests should be directed to Stephen A. Hellrung, Vice President and General Counsel, Bausch & Lomb Incorporated, One Lincoln First Square, Rochester, New York 14601-0054 (telephone (716) 338-6000). EX-10 6 EXHIBIT (10)-BB Exhibit (10)-bb As restated by the Committee on Management of the Board of Directors December 9, 1996 DIRECTOR DEFERRED COMPENSATION PLAN 1. Introduction The Director Deferred Compensation Plan (the "Plan") provides the opportunity for Directors of Bausch & Lomb Incorporated (the "Company") to defer all or part of their cash compensation for serving on the Company's Board of Directors or Committees of the Board of Directors pursuant to the terms of this Plan. This Plan is a restatement of the Company's Deferred Compensation Plan dated February 25, 1992, as amended (the "1992 Plan"). 2. Effective Date The effective date of the Plan is January 1, 1997 (the "Effective Date"). It covers eligible compensation earned after the Effective Date as well as all monies previously deferred under the 1992 Plan. 3. Eligibility Any director of the company who is not an officer or employee of the Company is eligible to participate in the Plan with respect to the cash compensation otherwise payable to him or her for serving on the Company's Board of Directors or Committees of the Board of Directors. 4. Amount of Deferral A director may elect to defer receipt of the compensation described in Section 3 hereof; provided that a minimum amount of $5,000 per year must be deferred.. 5. Time of Election of Deferral A director's election to defer cash compensation must be made before the compensation is earned, which means that the election for any year of service commencing with the meeting of the Board of Directors immediately following the Annual Meeting of the Company's Shareholders must be made prior to that meeting. 6. Deferral Election a) To defer compensation under the Plan, a director must give written notice to the Plan Administrator. This notice must include (1) the amount or percentage of compensation to be deferred; (2) selection of investment account(s) (as described in Section 7 hereof); (3) the payment commencement date, (i.e. retirement or date certain); (4) the method of payment desired (i.e. annual, lump sum) and, if annual, the number of years of installment payments; and (5) the designation of payment to the director's estate or beneficiary in the event of the director's death. The Company will provide notice forms for deferral elections (see Exhibits I and II). b) If a director names someone other than his or her spouse as a beneficiary in the event of director's death, a spousal consent form must be signed by that director's spouse and returned to the Company. c) A deferral election (including payment commencement date and method of payout) will continue in effect as to compensation earned in future years until such time as the Company is notified in writing that (1) the director no longer wishes to defer compensation payable subsequent to such notification, or (2) an alternate payment commencement date and/or method of payout is elected for future deferrals of earnings. d) For all compensation deferred after the Effective Date of this Plan, a director may elect only two payment options, each consisting of a payment commencement date and a method of payment. e) If a director elects to receive his or her deferred compensation in installments, the installment payments will be calculated in the following manner: the director's account balance at the payment commencement date will be multiplied by a fraction, the numerator of which is 1, and the denominator of which is the number of remaining installment periods. f) Retirement, for purposes of the Plan shall mean the date on which the director is both (i) at least age 55 and (ii) no longer a director of the Company. 7. Deferred Compensation Accounts a) Monies deferred under the Plan will be transferred to a trustee subject to a "Rabbi" Trust Agreement between the Company and a trustee designated by the Plan Administrator (the "Trust"). b) The rate of return on deferred compensation is determined by the performance of one or more deferred compensation investment accounts selected by the director pursuant to the Plan. Deferred compensation investment accounts available under the Plan are determined by the Company's Investment Committee ("Investment Account(s)"). Information on each Investment Account currently available under the Plan may be obtained from the Plan Administrator. The Investment Committee may, from time to time, in its discretion, deem it necessary or advisable to add or delete Investment Accounts or substitute new Investment Accounts for existing Investment Accounts. In such an event, the Plan Administrator will provide directors with reasonable notice of the effective date of the change to permit directors to change their future investment elections. c) All investments in Investment Accounts under the Plan are hypothetical. At the time of each deferral of compensation into the Plan, a director will be credited with an imputed number of shares for the Investment Account(s) selected by the director. Thereafter, the value of a director's Investment Accounts will fluctuate in accordance with the actual performance of the Investment Accounts. Dividends on the imputed shares also will be credited to the director's Investment Accounts. c) Earnings/losses on a director's Investment Account will be credited effective on the last business day of each month. All such earnings are net of expenses. Quarterly statements will be provided by the Plan Administrator. e) The deferral of compensation on a current basis will be allocated into Investment Account(s) pursuant to the deferral election determined by the director. The allocation must be in whole percentages; (i.e. 100% into one Investment Account, a 60-20-20 split among three Investment Accounts, etc.). f) By written notice to the Plan Administrator, a director may elect to reallocate amounts already in his/her Investment Accounts among the various Investment Account(s) on a monthly basis; except that a reallocation into or out of the Bausch & Lomb Common Stock Investment Account by directors of the Company may not be made more than once in any six (6) month period. 8. Payment of Deferred Compensation a) A director's right to payment of deferred compensation under the Plan is a contractual obligation of the Company to the director, and his or her right to such monies shall be an unsecured claim against the general assets of the Company. However, the Company has established the Trust as an irrevocable rabbi trust for directors for the purpose of holding assets used to provide the benefits required by this Plan. The Company shall make periodic contributions to the Trust as may be required to fund amounts payable under the Plan. The Trust provides a director with assurance that deferred monies will be paid to him or her in accordance with the Plan, except in the event of the Company's bankruptcy or insolvency. Amounts previously deferred have also been transferred to the Trust for the benefit of directors. Notwithstanding the establishment of the Trust, the Company remains ultimately responsible to pay deferred compensation to each director. This obligation shall be met from the general assets of the Company if the Trust has insufficient funds to pay benefits. b) Payments of deferred compensation to a director shall be pursuant to the director's deferral election notice given pursuant to Section 6 hereof. Except as provided in Subsections c) and d) below, a director may not change the payment commencement date or method of payment for monies already in his or her Investment Account(s). However, a director may choose a different payment commencement date and/or method payout for future deferrals subject to Section 6 above. c) If, in the discretion of the Plan Administrator, a director has a need for funds due to a financial emergency beyond the control of the director, a payment may be made to the director from the funds in his or her account at a date earlier than the payment commencement date chosen by the director at the time of deferral. A distribution based upon financial hardship may not exceed the amount required to meet the immediate financial need created by the hardship less the amount reasonably available to the director from other sources. Notwithstanding the foregoing, a director may not obtain a distribution based on financial hardship as to amounts paid into the director's Bausch & Lomb Common Stock account subsequent to April 30, 1991 (including earnings credited to those amounts). A director requesting a hardship distribution must supply the Plan Administrator with a statement indicating the nature of the need creating the financial hardship, the fact that all other available resources are insufficient to meet the need, and any other information that the Plan Administrator deems necessary to evaluate whether a financial hardship exists. d) A director may make an early withdrawal of monies deferred under the Plan at anytime, subject to the following penalties: forfeiture of 10% of the amount of the early withdrawal; and suspension of eligibility to make further deferral elections for a period of five years. Notwithstanding the foregoing, a director may not obtain a distribution under this Subsection as to amounts paid into the director's Bausch & Lomb Common Stock account subsequent to April 30, 1991 (including earnings credited to those amounts). e) In the event of a director's death before he or she has received all of the deferred payments to which he or she is entitled, payments will be made, according to the director's election pursuant to Section 6 hereof, to the director's estate or beneficiary either (a) continuing in the same manner as designated with respect to payments to the director while living or (b) in a single lump sum payment the value of which is determined as of the date immediately following the director's death and paid on the first January 15 or July 15 following such valuation date (or as soon as reasonably possible thereafter). f) All payments made to a director shall be subject to all taxes required to be withheld under applicable laws and regulations of any governmental authorities. g) If a director is terminated as a director of the Company, the first day of February next following the date of termination will be deemed to be the payment commencement date for account balances of less than $3,500 and, payment will be made to the director in a lump sum. h) Upon a Change of Control (as defined below) notwithstanding a director's payment commencement date with respect to any compensation deferred hereunder or method of payout with respect to any compensation deferred hereunder, all amounts in a director's deferred compensation account (including earnings credited thereto) shall be due and payable to the director in a cash lump sum within 15 days following the Change of Control; provided, however that amounts paid into the director's Bausch & Lomb Common Stock account during a Section 16 Period (including earnings credited to those amounts) shall be due and payable only upon termination of the director's status as a director following a Change in Control or, if earlier, the payment commencement date previously elected by the director. For purposes of this Plan, Change of Control shall mean: (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 election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 9. Administration The Treasurer of the Company, as the designee of the Committee on Management of the Board of Directors, shall be the Plan Administrator and has the authority to control and manage the operation and administration of the Plan. The Investment Committee shall be the Investment Committee of Bausch & Lomb Incorporated. 10. Assignability No right to receive payments under the Plan is transferable or assignable by a director except by will or by the laws of descent and distribution. 11. Business Days In the event any date specified falls on a Saturday, Sunday, or holiday, such date will be deemed to refer to the next business day thereafter. 12. Amendment The Plan may at any time or from time to time be amended, modified, or terminated by the Board of Directors or the Committee on Management of the Board of Directors of the Company. No such amendment, modification, or termination will, without the consent of the director, adversely affect the director's accruals in his or her deferred compensation account BAUSCH & LOMB INCORPORATED By:____________________________ Date:__________________________ EX-10 7 EXHIBIT (10)-CC Exhibit (10)-cc As restated by the Committee on Management of the Board of Directors December 9, 1996 EXECUTIVE DEFERRED COMPENSATION PLAN Introduction The Executive Deferred Compensation Plan (the "Plan") provides the opportunity for executives of Bausch & Lomb Incorporated (the "Company") to defer all or part of their compensation as follows: Payments under the Executive Incentive Compensation Program ("EICP"); b) Base salary and; c) After deferrals to the Company's Savings Plus Plan exceed the indexed cap on contributions to the Savings Plus Plan under Section 401(k) of the Internal Revenue Code (the "Savings Plus Plan Cap"), salary may be deferred to the Plan and the Company will make matching contributions to the extent it would have made such contributions under the Savings Plus Plan, but for the Savings Plus Plan Cap. Restatement, Effective Date This Plan is a restatement of the Company's Executive Deferred Compensation Plan dated February 25, 1992, as amended (the "1992 Plan"). The effective date of the Plan is January 1, 1997 (the "Effective Date"). It covers eligible compensation earned after the Effective Date and deferred hereunder as well as all monies previously deferred under the 1992 Plan. Eligibility Commencing on the Effective Date, the Plan is available to all employees in the senior executive and executive bands and officers of the Company. Compensation deferred under the 1992 Plan by employees who are no longer eligible to defer compensation under this Plan will nonetheless be subject to the terms of this Plan; provided that no modification of the 1992 Plan effected by this Plan shall adversely affect such employees' deferrals under the 1992 Plan. Amount of Deferral An eligible employee may become a participant in the Plan by electing to defer all or part of the compensation referred to in Section 1. With respect to compensation otherwise due under EICP, a minimum amount of $5,000 per year must be deferred. For deferrals of compensation otherwise payable as base salary, a minimum amount of $500 per month must be deferred. For deferrals of salary to the Plan in excess of the Savings Plus Plan Cap, there is no minimum amount of deferral. Prior to any deferral of compensation all applicable FICA and Medicare taxes will be withheld Time of Deferral Election A participant's election to defer compensation must be made by written notice to the Plan Administrator on behalf of the Company before the compensation is earned. In the case of compensation payable under EICP, the deferral election must be made by December 31 prior to the year during which the incentive payment will be earned. For new employees, the election to defer EICP compensation to be earned in the year of hire, but otherwise payable in the following year, must be made within thirty (30) days of the date of hire. To defer base salary or salary in excess of the Savings Plus Cap, the deferral election must be made at least 15 days prior to the first day of the month for which the participant wishes to defer salary. d) A deferral election will continue in effect only for compensation earned in the current year and must be renewed annually for compensation earned in each subsequent year. Deferral Election To defer compensation under the Plan, a participant must give written notice to the Plan Administrator. This notice must include (1) the amount or percentage of compensation to be deferred; (2) selection of investment account(s) (as described in Section 7 hereof); (3) the payment commencement date, (i.e. retirement or date certain); (4) the method of payment desired (i.e. annual, lump sum) and, if annual, the number of years of installment payments; and (5) the designation of payment to the participant's estate or beneficiary in the event of the participant's death. The Company will provide notice forms for deferral elections (see Exhibits I and II). b) If a participant names someone other than his or her spouse as a beneficiary in the event of participant's death, a spousal consent form must be signed by that participant's spouse and returned to the Company. c) EICP deferrals and deferrals in excess of the Savings Plus Plan Cap must be for at least one year. All base salary deferrals must be for at least six months. d) For all compensation deferred after the Effective Date of this Plan, a participant may elect only two payment options, each consisting of a payment commencement date and a method of payment. e) If a participant elects to receive his or her deferred compensation in installments, the installment payments will be calculated in the following manner: the participant's account balance at the payment commencement date will be multiplied by a fraction, the numerator of which is 1, and the denominator of which is the number of remaining installment periods. f) Retirement, for purposes of the Plan shall mean the date on which the participant is both (i) at least age 55 and (ii) no longer employed by the Company. Deferred Compensation Investment Accounts a) Monies deferred under the Plan will be transferred to a trustee subject to a "Rabbi" Trust Agreement between the Company and a trustee designated by the Plan Administrator (the "Trust"). b) The rate of return on deferred compensation is determined by the performance of one or more deferred compensation investment accounts selected by the participant pursuant to the Plan. Deferred compensation investment accounts available under the Plan are determined by the Company's Investment Committee ("Investment Account(s)"). Information on each Investment Account currently available under the Plan may be obtained from the Plan Administrator. The Investment Committee may, from time to time, in its discretion, deem it necessary or advisable to add or delete Investment Accounts or substitute new Investment Accounts for existing Investment Accounts. In such an event, the Plan Administrator will provide participants with reasonable notice of the effective date of the change to permit participants to change their future investment elections. c) All investments in Investment Accounts under the Plan are hypothetical. At the time of each deferral of compensation into the Plan, participant will be credited with an imputed number of shares for the Investment Account(s) selected by the participant. Thereafter, the value of a participant's Investment Accounts will fluctuate in accordance with the actual performance of the Investment Accounts. Dividends on the imputed shares also will be credited to the participant's Investment Account. d) Earnings/losses on a participant's Investment Account will be credited effective on the last business day of each month. All such earnings are net of expenses. Quarterly statements will be provided by the Plan Administrator. e) The deferral of compensation on a current basis will be allocated into Investment Account(s) pursuant to the deferral election determined by the participant. The allocation must be in whole percentages; (i.e. 100% into one Investment Account, a 60-20-20 split among three Investment Accounts, etc.). f) By written notice to the Plan Administrator, a participant may elect to reallocate amounts already in his/her Investment Accounts among the various Investment Account(s) on a monthly basis; except that a reallocation into or out of the Bausch & Lomb Common Stock Investment Account by officers of the Company subject to Section 15 of the Securities Exchange Act of 1934 (i.e. Section 16(b) regulations) may not be made more than once in any six (6) month period. 8. Payment of Deferred Compensation a) A participant's right to payment of deferred compensation under the Plan is a contractual obligation of the Company to the participant, and his or her right to such monies shall be an unsecured claim against the general assets of the Company. However, the Company has established the Trust as an irrevocable rabbi trust for participants for the purpose of holding assets used to pay deferred compensation required by this Plan. The Company shall make periodic contributions to the Trust as may be required to fund amounts payable under the Plan. The Trust provides a participant with assurance that deferred monies will be paid to the participant in accordance with the Plan, except in the event of the Company's bankruptcy or insolvency. Amounts previously deferred have also been transferred to the Trust for the benefit of participants. Notwithstanding the establishment of the Trust, the Company remains ultimately responsible to pay deferred compensation to each participant. This obligation shall be met from the general assets of the Company if the Trust has insufficient funds to pay benefits. b) Payments of deferred compensation to a participant shall be pursuant to the participant's deferral election notice given pursuant to Section 6 hereof. Except as provided in Subsections c) and d) below, a participant may not change the payment commencement date or method of payment for monies already in his or her Investment Account(s). However, a participant may choose a different payment commencement date and/or method payout for future deferrals subject to Section 6 above. If, in the discretion of the Plan Administrator, a participant has a need for funds due to a financial emergency beyond the control of the participant, a payment may be made to the participant from the funds in his or her account at a date earlier than the payment commencement date chosen by the participant at the time of deferral. A distribution based upon financial hardship may not exceed the amount required to meet the immediate financial need created by the hardship less the amount reasonably available to the participant from other sources. Notwithstanding the foregoing, a participant may not, during a Section 16 Period, obtain a distribution based on financial hardship as to amounts paid into the participant's Bausch & Lomb Common Stock Investment Account (including earnings credited to those amounts). As used herein, the term "Section 16 Period" shall mean any period subsequent to the Effective Date, during which the participant was subject to Section 15 of the Securities Exchange Act of 1934. A participant requesting a hardship distribution must supply the Plan Administrator with a statement indicating the nature of the need creating the financial hardship, the fact that all other available resources are insufficient to meet the need, and any other information that the Plan Administrator deems necessary to evaluate whether a financial hardship exists. d) A participant may make an early withdrawal of monies deferred under the Plan at anytime, subject to the following penalties: forfeiture of 10% of the amount of the early withdrawal; and suspension of eligibility to make further deferral elections for a period of five years. Notwithstanding the foregoing, a participant may not, during a Section 16 Period, obtain a distribution under this Subsection as to amounts paid into the participant's Bausch & Lomb Common Stock Investment Account (including earnings credited to those amounts). e) In the event of a participant's death before he or she has received all of the deferred compensation payments to which he or she is entitled, payments will be made, according to the participant's deferral election pursuant to Section 6 hereof, to the participant's estate or beneficiary either (a) continuing in the same manner as designated with respect to payments to the participant while living or (b) in a single lump sum payment the value of which is determined as of the date immediately following the participant's death and paid on the first January 15 or July 15 following such valuation date (or as soon as reasonably possible thereafter). f) All payments made to participants under the Plan shall be subject to all taxes required to be withheld under applicable laws and regulations of any governmental authorities. g) Upon termination of a participant as an employee of the Company, the first day of February next following the date of termination will be deemed to be the payment commencement date for account balances of less than $3,500 and, such payment will be made to the participant in a lump sum. h) If the Company determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a participant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Internal Revenue Code Section 162(m), then to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the participant pursuant to this Plan prior to the Change in Control is deductible, the Company may defer all or any portion of such distribution under this Plan. i) Upon a Change of Control (as defined below) notwithstanding a participant's payment commencement date with respect to any compensation deferred hereunder or method of payout with respect to any compensation deferred hereunder, all amounts in a participant's deferred compensation account (including earnings credited thereto) shall be due and payable to the participant in a cash lump sum within 15 days following the Change of Control; provided, however that amounts paid into the participant's Bausch & Lomb Common Stock Investment Account during a Section 16 Period (including earnings credited to those amounts) shall be due and payable only upon termination of the participant's employment following a Change in Control or, if earlier, the payment commencement date previously elected by the participant. For purposes of this Plan, Change of Control shall mean: (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 election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, in each case, unless, following such reorganization, merger, binding share exchange or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 9. Administration The Treasurer of the Company, as the designee of the Committee on Management of the Board of Directors, shall be the Plan Administrator and has the authority to control and manage the operation and administration of the Plan. The Investment Committee shall be the Investment Committee of Bausch & Lomb Incorporated. 10. Assignability No right to receive payments under the Plan is transferable or assignable by a participant except by will or by the laws of descent and distribution. 11. Business Days In the event any date specified falls on a Saturday, Sunday, or holiday, such date will be deemed to refer to the next business day thereafter. 12. Amendment The Plan may at any time or from time to time be amended, modified, or terminated by the Board of Directors or the Committee on Management of the Board of Directors of the Company. No such amendment, modification, or termination will, without the consent of the director, adversely affect the director's accruals in his or her deferred compensation account BAUSCH & LOMB INCORPORATED BY:____________________________ DATE:__________________________ EX-10 8 EXHIBIT (10)-DD Exhibit (10)-dd BAUSCH & LOMB INCORPORATED ANNUAL RETAINER STOCK PLAN FOR NON-EMPLOYEE DIRECTORS 1. INTRODUCTION This plan shall be known as the "Bausch & Lomb Annual Retainer Stock Plan For Non-Employee Directors" and is hereinafter referred to as the "Plan". The purposes of the Plan are to enable Bausch & Lomb Incorporated, a New York corporation (the "Company"), to promote the interests of the Company and its shareholders by attracting and retaining non-employee Directors capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company's shareholders, by paying half of what heretofore had been their annual cash retainer in the form of shares of the Company's common stock, par value $.40 per share (the "Common Stock"). 2. DEFINITIONS The following terms shall have the meanings set forth below: "Annual Meeting" means an annual meeting of the shareholders of the Company. The "Annual Cash Retainer Amount" for a Participant means the dollar amount of the annual cash retainer payable to the Participant for service on the Board for the Plan Year or the portion of the Plan Year during which he or she is a Participant; provided that, for these purposes only, such dollar amount shall not be increased more than once every three years. The Annual Cash Retainer Amount for the first Plan Year shall be $15,000, which is one-half the retainer amount that would be paid in cash to Directors for service on the Board during the year commencing with the Annual Meeting in 1996, absent the Plan. The "Board" means the Board of Directors of the Company. "Change of Control" has the meaning set forth in Section 12(d). The "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. References to any provision of the Code or rule or regulation thereunder shall be deemed to include any amended or successor provision, rule or regulation. The "Committee" means the committee that administers the Plan, as more fully defined in Section 13. "Common Stock" has the meaning set forth in Section 1. The "Company" has the meaning set forth in Section 1. "Deferral Election" has the meaning set forth in Section 6. "Deferred Stock Account" means a bookkeeping account maintained by the Company for a Participant representing the Participant's interest in the shares credited to such Deferred Stock Account pursuant to Section 7. "Delivery Date" has the meaning set forth in Section 6. "Director" means an individual who is a member of the Board of Directors of the Company. The "Dividend Equivalent" for a given dividend or other distribution means a number of shares of Common Stock having a Fair Market Value, as of the record date for such dividend or distribution, equal to the amount of cash, plus the fair market value on the date of distribution of any property, that is distributed with respect to one share of Common Stock pursuant to such dividend or distribution; such fair market value to be determined by the Committee in good faith. The "Effective Date" has the meaning set forth in Section 3. The "Exchange Act" has the meaning set forth in Section 13(b). The "Fair Market Value" means the mean between the highest and lowest reported sales prices of the Common Stock on the NYSE Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Common Stock is listed or on NASDAQ on the last trading day prior to the date with respect to which the Fair Market Value is to be determined. "Participant" has the meaning set forth in Section 4. "Payment Time" means the time when a Stock Retainer is payable to a Participant pursuant to Section 5 (without regard to the effect of any Deferral Election). "Plan Year" means the period from the date of an Annual Meeting through the day immediately preceding the date of the next Annual Meeting. "Stock Retainer" has the meaning set forth in Section 5. "Third Anniversary" has the meaning set forth in Section 6. The "Valuation Date" for a Stock Retainer means the date of the Annual Meeting that begins the Plan Year with respect to which such Stock Retainer is payable; provided that, if a person becomes a Participant on a day other than the date of an Annual Meeting, that day shall be the "Valuation Date" for such Participant for the Plan Year in which that day occurs. 3. EFFECTIVE DATE OF THE PLAN The Plan shall be effective as of the date of the Annual Meeting that occurs in 1996 (the "Effective Date"), provided that it is approved by the shareholders at such Annual Meeting. 4. ELIGIBILITY Each individual who is a Director on the Effective Date and each individual who becomes a Director thereafter during the term of the Plan, shall be a participant ("Participant") in the Plan, in each case during such period as such individual remains a Director and is not an employee of the Company or any of its subsidiaries. Each credit of shares of Common Stock pursuant to the Plan shall be evidenced by a written agreement duly executed and delivered by or on behalf of the Company and a Participant, if such an agreement is required by the Company to assure compliance with all applicable laws and regulations. 5. GRANTS OF SHARES Commencing on the Effective Date, one-half of the amount that had prior to the Effective Date been paid in cash to each Participant for service on the Board shall instead be payable in shares of Common Stock (the "Stock Retainer") pursuant to this Plan. The number of shares of Common Stock paid to each Participant as the Stock Retainer for a given Plan Year shall be determined by dividing (i) the Annual Cash Retainer Amount for such Participant for such Plan Year by (ii) the Fair Market Value on the Valuation Date, and then rounding to the nearest whole share. The Stock Retainer shall be payable immediately following the Company's Annual Meeting, provided that the Stock Retainer payable to any person who becomes a Participant following the Company's Annual Meeting, whether by appointment or election as a Director or by change in status from a full- time employee, shall be payable on the date such person first becomes a Participant. Shares of Common Stock credited to a Deferred Stock Account pursuant to Section 7 shall be delivered pursuant to Section 8 hereof. 6. DEFERRAL ELECTION From and after the Effective Date, a Participant may make an election (a "Deferral Election") on an annual basis to defer delivery of the Stock Retainer for the subsequent Plan Year, specifying which one of the following ways the Stock Retainer is to be delivered: (a) on the date which is three years after the date of the Annual Meeting for which it was originally payable (the "Third Anniversary"), (b) on the date upon which the Participant ceases to be a Director for any reason (the "Departure Date") or (c) in five equal annual installments commencing on the Departure Date (the "Third Anniversary" and the "Departure Date" each being referred to herein as a "Delivery Date"). Such Deferral Election shall remain in effect for each subsequent Plan Year unless changed, provided that, any Deferral Election with respect to a particular Plan Year may not be changed less than six months prior to the beginning of such Plan Year and provided, further, that no more than one Deferral Election or change thereof may be made in any Plan Year. Any Deferral Election and any change or revocation thereof shall be made by delivering written notice thereof to the Committee no later than six months prior to the beginning of the Plan Year in which it is to be effected; provided that, with respect to the Plan Year beginning on the Effective Date, any Deferral Election or revocation thereof must be delivered no later than the close of business on the 30th day prior to the 1996 Annual Meeting. 7. DEFERRED STOCK ACCOUNTS The Company shall maintain a Deferred Stock Account for each Participant who makes a Deferral Election to which shall be credited, as of the applicable Payment Time, the number of shares of Common Stock payable pursuant to the Stock Retainer to which the Deferral Election relates. So long as any amounts in such Deferred Stock Account have not been delivered to the Participant under Section 8, each Deferred Stock Account shall be credited as of the payment date for any dividend paid or other distribution made with respect to the Common Stock, with a number of shares of Common Stock equal to (a) the number of shares of Common Stock shown in such Deferred Stock Account on the record date for such dividend or distribution multiplied by (b) the Dividend Equivalent for such dividend or distribution. 8. DELIVERY OF SHARES (a) The shares of Common Stock in a Participant's Deferred Stock Account with respect to any Stock Retainer for which a Deferral Election has been made (together with dividends attributable to such shares credited to such Deferred Stock Account) shall be delivered in accordance with this Section 8 as soon as practicable after the applicable Delivery Date. Except with respect to a Deferral Election pursuant to Section 6(c), such shares shall be delivered at one time; provided that, if the number of shares so delivered includes a fractional share, such number shall be rounded to the nearest whole number of shares. If the Participant has in effect a Deferral Election pursuant to Section 6(c), then such shares shall be delivered in five equal annual installments (together with dividends attributable to such shares credited to such Deferred Stock Account), with the first such installment being delivered on the first anniversary of the Delivery Date; provided that, if in order to equalize such installments, fractional shares would have to be delivered, such installments shall be adjusted by rounding to the nearest whole share. If any such shares are to be delivered after the Participant has died or become legally incompetent, they shall be delivered to the Participant's estate or legal guardian, as the case may be, in accordance with the foregoing; provided that, if the Participant dies with a Deferral Election pursuant to Section 6(c) in effect, the Committee shall deliver all remaining undelivered shares to the Participant's estate immediately. References to a Participant in this Plan shall be deemed to refer to the Participant's estate or legal guardian, where appropriate. (b) The Company may, but shall not be required to, create a grantor trust or utilize an existing grantor trust (in either case, the "Trust") to assist it in accumulating the shares of Common Stock needed to fulfill its obligations under this Section 8. However, Participants shall have no beneficial or other interest in the Trust and the assets thereof, and their rights under the Plan shall be as general creditors of the Company, unaffected by the existence or nonexistence of the Trust, except that deliveries of Stock Retainers to Participants from the Trust shall, to the extent thereof, be treated as satisfying the Company's obligations under this Section 8. 9. SHARE CERTIFICATES; VOTING AND OTHER RIGHTS The certificates for shares delivered to a Participant pursuant to Section 8 above shall be issued in the name of the Participant, and from and after the date of such issuance the Participant shall be entitled to all rights of a shareholder with respect to Common Stock for all such shares issued in his or her name, including the right to vote the shares, and the Participant shall receive all dividends and other distributions paid or made with respect thereto. 10. GENERAL RESTRICTIONS (a) Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock under the Plan prior to fulfillment of all of the following conditions: (i) Listing or approval for listing upon official notice of issuance of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be a market for the Common Stock; (ii) Any registration or other qualification of such shares under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, upon the advice of counsel, deem necessary or advisable; and (iii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Committee shall, after receiving the advice of counsel, determine to be necessary or advisable. (b) Nothing contained in the Plan shall prevent the Company from adopting other or additional compensation arrangements for the Participants. (c) No Common Stock received by a Participant pursuant to the Plan may be sold until at least six months after the Payment Date for such Common Stock. 11. SHARES AVAILABLE Subject to Section 12 below, the maximum number of shares of Common Stock which may in the aggregate be paid as Stock Retainers pursuant to the Plan is 100,000. Shares of Common Stock issuable under the Plan may be taken from treasury shares of the Company or purchased on the open market. 12. ADJUSTMENTS; CHANGE OF CONTROL (a) In the event that there is, at any time after the Board adopts the Plan, any change in corporate capitalization, such as a stock split, combination of shares, exchange of shares, warrants or rights offering to purchase Common Stock at a price below its fair market value, reclassification, or recapitalization, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other extraordinary distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company (each of the foregoing a "Transaction"), in each case other than any such Transaction which constitutes a Change of Control (as defined below), (i) the Deferred Stock Accounts shall be credited with the amount and kind of shares or other property which would have been received by a holder of the number of shares of Common Stock held in such Deferred Stock Account had such shares of Common Stock been outstanding as of the effectiveness of any such Transaction, (ii) the number and kind of shares or other property subject to the Plan shall likewise be appropriately adjusted to reflect the effectiveness of any such Transaction and (iii) the Committee shall appropriately adjust any other relevant provisions of the Plan and any such modification by the Committee shall be binding and conclusive on all persons. (b) If the shares of Common Stock credited to the Deferred Stock Accounts are converted pursuant to Section 12(a) into another form of property, references in the Plan to the Common Stock shall be deemed, where appropriate, to refer to such other form of property, with such other modifications as may be required for the Plan to operate in accordance with its purposes. Without limiting the generality of the foregoing, references to delivery of certificates for shares of Common Stock shall be deemed to refer to delivery of cash and the incidents of ownership of any other property held in the Deferred Stock Accounts. (c) In lieu of the adjustment contemplated by Section 12(a), in the event of a Change of Control, the following shall occur on the date of the Change of Control: (i) the shares of Common Stock held in each Participant's Deferred Stock Account shall be deemed to be issued and outstanding as of the Change of Control; (ii) the Company shall forthwith deliver to each Participant who has a Deferred Stock Account all of the shares of Common Stock or any other property held in such Participant's Deferred Stock Account; and (iii) the Plan shall be terminated. (d) For purposes of this Plan, Change of Control shall mean any of the following events: (i) 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 (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (a) 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), (b) any acquisition by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (d) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (a), (b) and (c) of paragraph (iii) of this Section 12(d) are satisfied; or (ii) 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 (iii) Approval by the shareholders of the Company of a reorganization, merger, binding share exchange or consolidation, unless, following such reorganization, merger, binding share exchange or consolidation (a) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, binding share exchange or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, binding share exchange or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, binding share exchange or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger, binding share exchange or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or (iv) Approval by the shareholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (x) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) 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 (z) 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. 13. ADMINISTRATION; AMENDMENT AND TERMINATION (a) The Plan shall be administered by a committee consisting of three members who shall be the Chief Executive Officer, the Chief Financial Officer and the Senior Vice President - Human Resources or such other senior executive officers or other directors who are not Participants as may be designated by the Chief Executive Officer (the "Committee"), which shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all such determinations in connection with the Plan as it may deem necessary or desirable. (b) The Board may from time to time make such amendments to the Plan, including to preserve or come within any exemption from liability under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as it may deem proper and in the best interest of the Company without further approval of the Company's stockholders, provided that, to the extent required under New York law or to qualify transactions under the Plan for exemption under Rule 16b-3 promulgated under the Exchange Act, no amendment to the Plan shall be adopted without further approval of the Company's stockholders and, provided, further, that if and to the extent required for the Plan to comply with Rule 16b- 3 promulgated under the Exchange Act, no amendment to the Plan shall be made more than once in any six-month period that would change the amount, price or timing of the grants of Common Stock hereunder other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder. (c) The Board may terminate the Plan at any time by a vote of a majority of the members thereof. (d) Notwithstanding any other provision of the Plan, neither the Board nor the Committee shall be authorized to exercise any discretion with respect to the selection of persons to receive shares or credits of shares of Common Stock under the Plan or concerning the amount or timing of such receipt or credits under the Plan, and no amendment or termination of the Plan shall adversely affect the interest of any Participant in shares previously credited to such Participant's Deferred Stock Account without that Participant's express written consent. 14. MISCELLANEOUS (a) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Director for reelection by the Company's shareholders or to limit the rights of the shareholders to remove any Director. (b) The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock pursuant to the Plan, that a Participant make arrangements satisfactory to the Committee for the withholding of any taxes required by law to be withheld with respect to the issuance or delivery of such shares, including without limitation by the withholding of shares that would otherwise be so issued or delivered, by withholding from any other payment due to the Participant, or by a cash payment to the Company by the Participant. 15. GOVERNING LAW The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of New York. EX-11 9 EXHIBIT 11 Bausch & Lomb Incorporated Exhibit 11
Statement Regarding Computation of Per Share Earnings Dollars and Shares TWELVE MONTHS ENDED in Thousands December 28, December 30, Except Per Share Data 1996 1995 ___________________________________________________________ Net earnings $83,052 $112,022 Actual Outstanding Common and Class B shares at beginning of year 56,941 58,992 Average Common and Class B shares issued for stock options and effects of assumed exercise of Common stock equivalents and repurchase of Common shares (389) (1,140) Average Common shares outstanding 56,552 57,852 Net earnings per Common and Common share equivalent $1.47 $1.94
EX-12 10 EXHIBIT 12 Bausch & Lomb Incorporated Exhibit 12
Statement Regarding Computation of Ratio of Earnings to Fixed Charges Dollar Amounts in December 28, December 30, Thousands 1996 1995 __________________________________________________________ Earnings before provision for income taxes and minority interest $168,897 $211,847 Fixed charges 53,496 47,584 Capitalized interest, net of current period amortization 320 260 Total earnings as adjusted $222,713 $259,691 Fixed charges: Interest (including interest expense and capitalized interest) $ 51,718 $ 45,765 Portion of rents representative of the interest factor 1,778 1,819 Total fixed charges $ 53,496 $ 47,584 Ratio of earnings to fixed charges 4.16 5.46 Excluding the effect of the gain on sale of Sports Optics Division and restructuring charges recorded in 1995, the ratio of earnings to fixed charges at December 30, 1995 would have been 5.26. Excluding the effects of the restructuring charges recorded in 1996 and the net gain on divestutures of the oral care and dental implant businesses, the ratio of earnings to fixed charges at December 28, 1996 would have been 4.47.
EX-13 11 EXHIBIT 13 TO 1996 10-K Bausch & Lomb 1996 Annual Report 1996 Annual Report ---------------------------------------------------------------------- [GRAPHIC OF EYEBALL] Bausch & Lomb: A Future Focused on Eye Care Bausch & Lomb
Financial Highlights ----------------------------------------------------------------------------------------------------------------------- For The Years Ended Percentage December 31, 1994, December 30, 1995 and December 28, 1996 Change Dollar Amounts In Millions-- Except Per Share Data 1994 1995 1996 From 1995 ================================================================================================================================= Business Results (including restructuring, gain or loss on divestitures and goodwill impairment charges) Net sales $ 1,892.7 $ 1,932.9 $ 1,926.8 -- Operating earnings 119.8 210.6 190.8 (9%) Net earnings 31.1 112.0 83.1 (26%) Per Common share: Net earnings 0.52 1.94 1.47 (24%) Dividends declared 0.955 1.01 1.04 3% Shareholders' equity at year end 15.50 16.32 15.92 (2%) Return on average shareholders' equity 3.2% 11.9% 9.2% Business Results (excluding restructuring, gain or loss on divestitures and goodwill impairment charges) Net sales $ 1,892.7 $ 1,932.9 $ 1,926.8 -- Net sales from continuing product lines 1,692.2 1,836.5 1,877.1 2% Operating earnings 194.8 237.3 206.1 (13%) Operating earnings from continuing product lines 200.5 242.2 213.6 (12%) Net earnings 106.1 108.6 91.7 (16%) Per Common share: Net earnings 1.78 1.88 1.62 (14%) Return on average shareholders' equity 11.0% 11.7% 10.3% Other Financial Data Capital expenditures $ 84.8 $ 95.5 $ 130.3 Working capital 277.4 70.9 18.5 Average Common shares outstanding (000s) 59,739 57,852 56,552 High/low stock price $53 7/8-$30 5/8 $44 1/2-$30 7/8 $44 1/2-$32 1/2 =================================================================================================================================
Contents ------------------------------------------- Bausch & Lomb at a Glance 1 Letter to Shareholders 2 Strategic Discussion 9 Report of Management 21 Financial Review 22 Financial Statements 35 Notes to Financial Statements 38 Report of Independent Accountants 57 Selected Financial Data 58 Directors and Officers 59 Divisions and Subsidiaries 60 Corporate Information 62 Bausch & Lomb At A Glance ---------------------------------------------------------------------- In 1996, Bausch & Lomb realigned its business segments for the purpose of reporting its financial results. Our four new business segments, listed below, reflect a strategic emphasis on eye care products. [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Eyeware 27% Pharmaceuticals 10% Vision Care 45% Healthcare 18% Eyewear Our eyewear segment includes premium-priced sunglasses sold worldwide under such well-known names as Ray-Ban, Revo, Arnette and Killer Loop. This segment also includes optical thin film coating services. [Graphic of Sunglasses] Vision Care This segment includes contact lenses, lens materials and lens care products. Brand names include ReNu, Sensitive Eyes, SofLens66, Award and Boston. Vision care products are marketed through eye care professionals, pharmaceutical retailers and mass merchandisers. [Graphic of Vision Care Products] Pharmaceuticals This business manufactures and sells generic and proprietary prescription pharmaceuticals, mostly in the ophthalmic field, and over-the-counter (OTC) medications. These products are marketed under such names as Bausch & Lomb and Dr. Mann Pharma. [Graphic of Pharmaceutical Products] Healthcare Included in this segment are businesses which provide purpose-bred laboratory animals, biomedical products and services, skin care products and hearing aids. These products are marketed under such established names as Miracle-Ear, Mirage, Curel, Soft Sense and Charles River. [Graphic of Skin Care Products] page 1 ------ To Our Shareholders ---------------------------------------------------------------------- Our 1996 financial results were as disappointing to us as, we're sure, they were for you. But an unsatisfactory bottom line, resulting primarily from continuing challenges in our U.S. sunglass business, should not obscure the demonstrable progress we made in 1996 toward establishing a new foundation for growth at Bausch & Lomb. We're in the process of transforming Bausch & Lomb from every perspective--where we focus our corporate resources, how we manage our core product categories, how we structure our businesses, and in terms of leadership. We believe these efforts have positioned us to show real improvement in our financial performance in 1997, and to begin to deliver the solid, predictable results you're looking for over the longer term. Our Vision: Bausch & Lomb will be Number One in the Eyes of the World Our strategic transition is based on a clear, simple, universally understood vision of what we want the Company to be. From a diversified "healthcare and optics" company, we have evolved to a strong focus on the eye care field. Considering our heritage, our technological advantages, the skills of our people, our global infrastructure, our well-established brand names, our customer base, and the breadth of our product lines, it is obvious that this is where our main sources of competitive advantage are to be found. Our mission articulates how we will achieve our vision: As a global eye care company, we will help consumers see, look and feel better through innovative technology and design. This mission underscores a new focus on the consumer as the ultimate driver of each of our businesses, even as we recognize the critical importance of our partnership with eye care professionals. This vision and mission, along with a set of operating principles which serve as a guide to managing our business effectively and successfully, and a series of commitments or pledges to all those who have a stake in our Company, taken together, provide a clear focus and long-term direction for Bausch & Lomb. Core Businesses Prepared to Optimize Growth Potential In our vision care business, we've moved from a structure which treated soft and rigid gas permeable contact lenses and the associated lens care products as three completely different businesses, to one in which all contact lens and lens care product lines are integrated and focused on the needs and desires of the patient. Viewing the patient's needs as the ultimate driver of the business will allow us to maximize revenue per patient--regardless of how the balance of the patient's expenditure shifts between lenses and lens care products. Developing global marketing strategies, integrated product supply systems and unified research and development efforts in vision care also allows us to maximize our investments and address the highest priority market needs. We're now positioned with the broadest array of contact lenses and lens care products for every consumer and professional need. In the eyewear business, a similar transition is taking place--again based on the needs and desires of the ultimate consumer. Here the strategy is twofold: 1) to transition the product development and supply process for our flagship Ray-Ban brand from the traditional, classic styles for which it is famous, to a more flexible, market responsive system that can quickly and efficiently respond to changing consumer demands for trendier, more contemporary styles; and 2) to develop a global portfolio approach to leveraging the assets associated with our other eyewear brands including Arnette, Revo, Killer Loop, Liz Claiborne and Porsche Design around the world. page 2 - - ------ [Picture of William H. Waltrip, Chairman and William M. Carpenter, President and Chief Executive Officer] William H. Waltrip, Chairman and William M. Carpenter, President and Chief Executive Officer ---------------------------------------------------------------------- "We're in the process of transforming Bausch & Lomb from every perspective." page 3 ------ We've begun the process of developing a global image and retail merchandising strategy for Ray-Ban sunglasses, nearly completed the integration of our eyewear new product supply process, and had solid initial success with global expansion of our Killer Loop brand. In our core pharmaceutical business, our growth strategy also involves integration--the coalition of our generic ophthalmic, proprietary and over-the-counter pharmaceutical businesses into a flexible, market-driven, global business unit. Expanding the Dr. Mann Pharma franchise beyond its German origins into other European and Asian markets and supplementing our generic ophthalmic pharmaceutical product pipeline with higher margin proprietary products are cornerstones of this strategy. Global Business Structure Provides Management Focus Creating integrated global management structures in our three core businesses sharpens management focus within the vision care, eyewear and pharmaceuticals areas. From a geographically organized structure where resources for everything from marketing strategy to product development and supply were regionalized, we have created a new system wherein all decisions related to the operation of our core businesses are based on global market priorities. The executive management of each of the global core businesses now has both full responsibility for resource allocation and full accountability for results within its business area. Leadership in Transition Not only have our global businesses been organized under new executive management, but our full corporate structure is benefiting from new leadership as well. The Board of Directors has designated William M. Carpenter, who has served the company as president and chief operating officer during 1996, as the chief executive officer and approved William H. Waltrip's transition from chief executive officer to chairman. The Board conveyed its profound thanks to Mr. Waltrip for guiding the Company through a period of unprecedented challenge, and expressed its confidence that Mr. Carpenter's skills and experience would facilitate the achievement of the Company's growth objectives. 1996 Operating Highlights Our 1996 financial performance did not meet expectations, primarily because of continuing challenges in the U.S. sunglass business, where problems experienced by our largest customer resulted in sales declines. Nonetheless, there were notable accomplishments in most of our business lines and we made considerable progress against the key objectives we had identified as critical to our ability to capitalize on the attractive growth opportunities available to our Company. [bullet] Our vision care business is clearly back on track, with our disposable contact lens product lines growing at double-digit rates and returning the business to profitability after two difficult years. And while the lens care market continues to mature, we're more than holding our own in market share thanks to strong professional support. Developing international markets offer continued growth potential for this product line. [bullet] New sunglass products, particularly in the Ray-Ban line, were enthusiastically accepted in the market and more than 30% of sales came from product designs that were new to the market since 1995. We more than doubled revenue from our Killer Loop brand through global expansion, clearly reinforcing the potential for international expansion of our other sunglass brands. [bullet] Our pharmaceuticals business continued to show steady growth, driven by new product introductions, with especially strong performance in the United States. We are focused on keeping a steady stream of new products in the pipeline and building a base of proprietary products to complement the highly profitable but shorter life-cycled generic products. More than a dozen new products were introduced in 1996 and nearly that many are in the 1997 pipeline. [bullet] Our Miracle-Ear business had its best revenue growth in several years; and Charles River Laboratories continued to provide steady sales and earnings contributions. [bullet] Our continuing businesses outside the United States combined for growth of almost 8%, when the effects of currency are removed, with particularly strong results in Japan and Europe. International markets, now representing about one-half of our revenues, continue to offer excellent future growth opportunities for Bausch & Lomb. page 4 - - ------ [Picture of Bausch & Lomb's Board of Directors in session] Bausch & Lomb's Board of Directors in session, led by William H. Waltrip, Chairman. The active participation of the Board in key strategic, financial and operational issues has helped determine Bausch & Lomb's new direction. ---------------------------------------------------------------------- "...a new focus on the consumer as the ultimate driver of each of our businesses..." page 5 ------ [bullet] We sharpened the focus of our product portfolio and investment decisions through our decision to concentrate on the eye care field, and during 1996 we divested the remainder of our oral care and dental implant businesses. Acquisitions such as the Arnette Optic Illusions performance sport sunglass company and the Award one-day disposable contact lens business, both announced early in 1996, support our strategic vision. [bullet] We made real progress in accelerating new product flow. For example, through changes in our new product development process, combined with improvements in manufacturing and supply processes, we have cut in half the time it takes to bring a new sunglass product to market. [bullet] We've greatly improved our operational effectiveness through major projects including the reconfiguration of our eyewear manufacturing and product supply processes into three global product delivery centers; restructuring our European warehousing and logistics operations to yield better inventory management, improved product delivery times and reduced shipping expenses; and investing in new contact lens manufacturing capacity for both disposable and planned replacement lenses. Structural Cost Reductions Underway During 1996, steps were taken, including those outlined above, to ensure delivery of the $50 million in reduced overhead expenses we announced in late 1995. We now believe that there is considerably more room for improvement in our fixed cost structure and are proceeding with a global analysis to streamline the Company's organization and assure that we're properly configured to meet our strategic objectives. This major organizational assessment and cost study is expected to be completed during the first half of 1997, with recommendations beginning to be implemented by mid-year. This effort should result in additional annual cost reductions significantly beyond the $50 million identified in 1996. Savings realized through this process will allow us to reinvest in growing our businesses and provide a more predictable return to our investors. Building Shareholder Value Recognizing our commitment to provide you with attractive long-term economic returns and to achieve sustainable growth, Bausch & Lomb has joined the ranks of a growing number of companies which use Economic Value Added (EVA) as a financial management system to measure and drive the company's performance. EVA is a tool which simply yet effectively combines the income statement and the balance sheet into one number, by subtracting from earnings a charge for the utilization of assets employed in generating those earnings. We will make improvement in EVA the primary performance objective of all Bausch & Lomb business decisions to ensure that we meet your expectations for a fair return on your investment. New Directors We welcome new Directors, Domenico De Sole, president and chief executive officer of Gucci Group N.V., and Jonathan R. Linen, vice chairman of American Express Company, each of whom brings impressive experience in consumer marketing and global operations to Bausch & Lomb. Our Board of Directors has always provided excellent counsel, attentive oversight and a strong voice for investors' interests, but never more so than during the recent challenging years. We appreciate their continued commitment of time and talent to our Company. 1997 will provide us with challenges of its own. But our confidence in the men and women of Bausch & Lomb is boundless. We have articulated a clear, focused corporate Vision. We have organized our core businesses to maximize their global potential. We are in the process of becoming even more efficient, responsive and cost effective. Working together, and with the continued confidence and support of our shareholders, we can make our vision a reality--to become NUMBER ONE IN THE EYES OF THE WORLD. /s/ William H. Waltrip - - -------------------------- William H. Waltrip Chairman /s/ William M. Carpenter - - -------------------------- William M. Carpenter President and Chief Executive Officer page 6 - - ------ Our Vision -------------------- Bausch & Lomb will be Number One in the Eyes of the World Our Mission - - ------------------- As a global eye care company, we will help consumers see, look, and feel better through innovative technology and design [GRAPHIC OF FOUR EYES AND A PICTURE OF THE WORLD]] "We must complete the transformation...be a Company that is innovative and consumer driven...react quickly to change in our markets...we must lead change...find ways to reduce cost... make product investments for long term growth." page 8 - - ------ [Picture of Bill Carpenter] A Strategic Discussion with Bill Carpenter ---------------------------------------------------------------------- Why have you decided to refocus Bausch & Lomb's strategy on eye care? In many ways, redirecting our focus to eye care brings us "back to the future." Bausch & Lomb's competencies and technical abilities are founded in our heritage in eye care, and that is the category in which consumers know and trust us. Eighty-two percent of our revenue is derived from eye care, and we have a global organization that is second to none in its knowledge of and reputation with eye care practitioners and retailers. Eye care also presents us with tremendous opportunities for profitable growth in the future. We do not limit those opportunities to our current core eye care businesses of sunglasses, contact lens products and ophthalmic pharmaceuticals, although each of these businesses has significant growth potential in its own right. We define the eye care category broadly, to encompass any product that goes in or on the eye. Globally, the category represents over a $20 billion opportunity. Our eye care revenues represent less than 10% of that market, with tremendous room to grow. Our renewed focus on eye care has driven much of what we have done in the past year. It has led us to divest two non-core businesses, our oral care and dental implant businesses. It also shaped our decision to invest in our core businesses with acquisitions such as Arnette and Award. As we transition Bausch &Lomb from operating diversified, decentralized businesses to a focused, globally-managed eye care company, we have opportunities to streamline our infrastructure, and reinvest the savings to grow our core businesses and in exciting new opportunities in eye care. page 9 ------ - - -------------------------------------------------------------------------------- Eyewear 1996 Milestones [bullet] Over 30% of revenues generated by products introduced since 1995. [bullet] Enhanced our eyewear portfolio through the acquisition of Arnette Optic Illusions Inc. and a licensing agreement with Porsche Design. [bullet] Began integrating our global manufacturing into three regional product delivery centers. [bullet] More than doubled sales of the Killer Loop line through expansion across international markets. [bullet] Cut new product lead time in half. 1997 Goals [bullet] 65% of revenues to be generated by products introduced since 1995. [bullet] Increase international sales of eyewear brands other than Ray-Ban by 40%. [bullet] Build capabilities to reduce cost and improve responsiveness within the three product delivery centers. - - -------------------------------------------------------------------------------- What caused the disappointing performance of your sunglass business last year? Several factors came into play. For one thing, consumer demand for our traditional Ray-Ban styles, like Wayfarer and Classic Metals, declined. Recognizing this, our retail customers cut back sharply on their orders. At the same time, new styles of Ray-Ban sunglasses, led by the Orbs and Sidestreet lines, proved to be far more successful than we had expected. The problem was that we couldn't produce them fast enough to offset the decline in our traditional sunglass business. While we made progress in reducing our manufacturing lead times, this program wasn't far enough along in 1996 to turn things around. Finally, our largest retail customer in the U.S. experienced its own inventory over-supply difficulties in the second half of the year, and sharply cut back its orders. Does the continued softness in your premium-priced sunglass business point to a more serious, long-term weakness in this market? To the contrary. We believe the sales curve in 1996 for Revo, Arnette, Killer Loop and the new styles of Ray-Ban sunglasses was as strong as ever. Consider the fact that in the U.S., where we have the most data, the premium-priced sunglass ($30 and above) market grew by over 10% through the end of last year's summer selling season. Elsewhere in the world, consumer demand for high-quality sunglasses was also on the rise. In Europe, the market began to show some vitality following a period of economic slow down, while Asia continues to be a growth market for us. [THE FOLLOWING TABLES WERE REPRESENTED BY TWO BAR CHARTS IN THE PRINTED MATERIAL.] Baush & Lomb Eyewear Product Mix (Percent) Traditional Ray-Ban Contemporary Ray-Ban Other Brands 1994 49 35 16 1995 42 40 18 1996 27 47 26 Source: Bausch & Lomb sales data U.S. Premium Sunglass Market (Dollar Market Consumption) (Millions of Dollars) US Sunglasses Bar Chart 92 652 93 735 94 780 95 740 96 892 Source: Independent research page 10 - - ------- What are you doing to ensure a similar situation doesn't recur in 1997 or beyond? We're taking action on three different fronts. First, we're keeping up with evolving consumer tastes and trends by speeding the flow of new styles to the market. We've already cut in half the time it takes to bring a new sunglass style to market, and our next goal is to cut that time in half again. Secondly, as retail inventories of traditional styles come into balance, we are working to ensure that the face of Ray-Ban sunglasses is right at retail. By that I mean that we want consumers to find the right mix of new and traditional styles available in the stores, and merchandised in a fresh, exciting way. We're making significant improvements in our internal product supply processes and in our relationships with key vendors so that we can keep up with consumer demand for our new styles. Finally, we now receive electronic information on consumer sales at our largest customer's locations and plan to expand that program to other customers. That information will not only allow us to anticipate our customers' inventory needs, it will keep us attuned to the consumer trends in the marketplace. [Picture of four people wearing Ray-Ban Sunglasses] The Orbs and Sidestreet lines -- contemporary new styles of Ray-Ban sunglasses - - -- drive growth by meeting changing consumer tastes. page 11 ------- [Picture of two people wearing sunglasses] Catfish and Raven, two hot new styles of Arnette sunglasses, added to Bausch & Lomb's eyewear portfolio in 1996. - - -------------------------------------------------------------------------------- Eyewear Key Strategies [bullet] Continue to strengthen the Ray-Ban line globally with exciting and contemporary new styles, improved merchandising presence and breakthrough marketing efforts. [bullet] Leverage other popular U.S. brands--like Killer Loop, Revo and Arnette sunglasses--on a worldwide basis. [bullet] Redesign the product delivery system to reduce cost and ensure quicker responsiveness to customer needs. - - -------------------------------------------------------------------------------- [Picture of one person wearing sunglasses] The Killer Loop Pandemonium sunglasses combine a contemporary new style with a bold attitude and youth relevant advertising to drive worldwide expansion. page 12 - - ------- - - -------------------------------------------------------------------------------- Vision Care 1996 Milestones [bullet] Acquired Award plc, a U.K.-based producer of low-cost, daily disposable contact lenses. [bullet] Increased contact lens revenues 17% over the prior year, and dramatically improved profitability ahead of schedule. [bullet] Successfully maintained our leadership position in lens care despite new entries in the highly competitive U.S. market. [bullet] Created an integrated vision care organization to better capitalize on our global strengths and resources. 1997 Goals [bullet] Expand our market penetration and share of the daily disposable and planned replacement contact lens market. [bullet] Launch an improved ReNu multi-purpose lens solution. [bullet] More than double our annual capacity for daily disposable lenses. [bullet] Reduce contact lens manufacturing costs by 10%. [bullet] Achieve vision care revenue growth in the range of 7%, and a return on sales of greater than 20%. - - -------------------------------------------------------------------------------- Why did you feel it necessary to combine your lens and lens care units into a single vision care business? The answer is simple: it made good sense. Both serve the same sets of customers--consumers, eye care professionals and retailers--through the broadest portfolio of contact lens and lens care products in the world. We realized that by combining these lines, we could align our efforts behind a single global strategy which would fully leverage our market-leading brand equity and family of products. This would allow us to eliminate wasteful duplication and free up investment dollars to grow the business around the world. How do you intend to maintain the profitability of your vision care business when you rank behind the leader in the growing disposable lens market? Our goal is to be the global leader in total vision care, not just a specific segment. Our greatest asset in obtaining this objective is our balanced portfolio of products that allows us to meet the widest range of consumer vision care needs. Consider what Bausch & Lomb currently has: a broad line of recognized names in both lens and lens care products which positions us to take full advantage of the worldwide trend to lens replacement on a more frequent basis. More specifically, our SofLens66 lenses coupled with ReNu multi-purpose solution, the global market leader in one-step lens care products, and Award one-day disposable contact [THE FOLLOWING TABLES WERE REPRESENTED BY TWO BAR CHARTS IN THE PRINTED MATERIAL.] Global Contact Lens Patient Trends (Millions of Patients) Contact Lens Trends Bar Chart RGP/PMMA Traditional PRP/Disposable One Day 95 13.5 23.1 15.6 0.3 96 13 22.9 21.5 0.7 97 (est.) 12.5 18.4 28.1 4.7 Bausch & Lomb estimate Bausch & Lomb Annual Per-Patient Margin Lenses and Lens Care Products Per Patient Margin Index Bar Chart Traditional 100 RGP 80 1-3 Month 110 1-2 Wks 140 One Day 150 Margin indexed against traditional patient Bausch & Lomb estimate page 13 ------- lenses, make for a powerful competitive advantage. We have lens and lens care products for every wearing modality including daily disposable. Looking at the individual patient as a long-term revenue stream, the combined lens and lens care margin generated by patients in each modality provides significant dollars for Bausch & Lomb regardless of the lens modality chosen. Our goal is to maximize our share of contact lens wearers by leveraging the consumers' knowledge of and trust in the Bausch & Lomb brand name. Another important element of our strategy is our continuing effort to reduce overall costs. In 1996, we cut costs on our key contact lens products by more than 10% and significantly improved our margins. The integration of our vision care business also will reduce structural cost. These vital cost reduction programs will continue through 1997, and beyond. Through these combined strategies, we intend not only to maintain the profitability of our vision care business, but to enhance it over the long term. [Graphic of watches and Bausch and Lomb SoftLens66 Package] daily weekly monthly serving all lens markets Award and SofLens66 contact lenses strengthen Bausch & Lomb's offerings of premium products designed to meet the requirements of patients within all lens wearing modalities. page 14 - - ------- [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] Consumer Loyalty Rating (Percent Loyalty) ReNu 85 Advil 26 Secret 33 Pert 29 Vaseline Intensive Care 39 Source: Independent research The U.S. market has seen an onrush of new branded and private label lens care products. What is your strategy for keeping your lead in this all-important market? It's true, there have been many new entries into the lens care business in recent years. But that hasn't kept Bausch & Lomb from maintaining its leadership of the $1.7 billion lens care business worldwide. And that, we believe, is testimony to the technical superiority of our brands, particularly the ReNu and Boston lines of quality products, which are unique, patented formulations. Our strategy is to continue to build brand loyalty among consumers and health care practitioners. An important vehicle for that effort will be the introduction of innovative Bausch & Lomb products, as demonstrated by a new and improved ReNu multi-purpose solution. Complementing this effort is a consumer marketing program emphasizing the unique advantages of our products. - - -------------------------------------------------------------------------------- Vision Care Key Strategies [bullet] Leverage our strengths and opportunities across our full lines of lens and lens care products. [bullet] Maintain global market leadership in the lens care business. [bullet] Continue to drive lens costs down, and reinvest the savings to grow the business. [bullet] Increase our worldwide base of consumers using Bausch & Lomb vision care products, particularly disposable and planned replacement lenses and ReNu multi-purpose solution. - - -------------------------------------------------------------------------------- [GRAPHIC] ReNu multi-purpose solution maintains a strong #1 position based on brand strength and patented formulations. page 15 ------- - - -------------------------------------------------------------------------------- Pharmaceuticals 1996 Milestones [bullet] Formed global alliance with InSite Vision, Incorporated to develop and market proprietary glaucoma treatments. [bullet] Broadened our alliance with Pharmos Corporation to develop the Lotemax line of ophthalmic anti-inflammatory products. [bullet] Fifteen new products released to market. 1997 Goals [bullet] Launch the first in a series of Lotemax ophthalmic products. [bullet] File a New Drug Application (NDA) with the FDA for a Lotemax allergy drug. [bullet] Release to market eleven new products. - - -------------------------------------------------------------------------------- You've identified pharmaceuticals as a core business of Bausch & Lomb. How do you intend to compete against the established leaders in the field? Our strategy is to concentrate on a relatively narrow niche--ophthalmic pharmaceuticals--where we can capitalize on our Company's strong image among eye care professionals, pharmacists and consumers. We intend to compete on several key platforms. First is our proven ability to bring regulated products to market in a timely manner. Second is a network of facilities for the production of sterile and non-sterile preparations that is unsurpassed in the industry. Further, we are a leading low-cost producer of generic pharmaceuticals in the highly competitive U.S. market, and a leading manufacturer of prescription and OTC eye care and other healthcare products in the U.S. and Germany. These diverse pharmaceutical businesses provide critical mass and an earnings stream that permit us to invest in expanding our proprietary ophthalmic lines around the world. How does Minoxidil fit into this niche pharmaceutical strategy? Minoxidil is a special case. It presented us with a solid commercial opportunity and the chance to take advantage of our low-cost manufacturing competency for pharmaceutical preparations. It also played to our proven ability to bring generic products to market quickly. The proceeds from the sale of Minoxidil are not insignificant. They're allowing us to bring short-term value to our shareholders, and help fund the development of additional ophthalmic drugs which, ultimately, will be the key to the success of this core business. What are your plans for growing the pharmaceutical business? An integral part of our strategy is continuing the flow of new proprietary products through the licensing and acquisition of new technologies and through internal development. We're also exploiting opportunities to bring new generic products to market as soon as patents expire, and to introduce OTC versions of established prescription drugs. Globally, we're actively pursuing regulatory approvals necessary to bring proprietary drugs and selected generics into new markets outside the U.S. and Germany. We believe these strategies will result in combined revenue growth exceeding 10% over the next three years for our pharmaceutical business. page 16 - - ------- - - -------------------------------------------------------------------------------- [GRAPHIC] [Graphic of eye and pharmaceutical bottles floating about] Pharmaceuticals Key Strategies [bullet] Drive business growth through the aggressive acquisition of technology coupled with internal development. [bullet] Continue to invest in new generic drugs which leverage our drug development, manufacturing and commercial capabilities. [bullet] Take advantage of the Company's brand heritage and global infrastructure to expand distribution of proprietary and select generic products. - - -------------------------------------------------------------------------------- A focused stream of new ophthalmic products along with opportunistic non-ophthalmic product introductions are the keys to continued growth for Bausch & Lomb's pharmaceutical business. page 17 ------- - - -------------------------------------------------------------------------------- Healthcare 1996 Milestones [bullet] Divested the oral care and dental implant businesses. [bullet] Continued the turnaround of our Miracle-Ear business with revenue growth of 9%. [bullet] The Curel brand was the growth leader in the U.S. hand and body lotion market. [bullet] Revenues from Charles River Laboratories' contract research services grew 30% over the prior year. 1997 Goals [bullet] Commercialize new Miracle-Ear technology. [bullet] Launch Curel skin care line extensions. [bullet] Increase revenue in our Charles River Laboratories business by at least 7% while maintaining operating profit margins. [bullet] Tightly manage businesses in this segment to maximize financial returns. - - -------------------------------------------------------------------------------- Since the "Healthcare" businesses are unrelated to your eye care strategy, how do they figure in the growth plans for your business? While these businesses aren't central to our eye care strategy, they can certainly make important contributions to our overall performance. For that reason, they will remain in our business portfolio as long as they can generate value for our shareholders. What are the prospects for these businesses? In a word, outstanding. Charles River Laboratories, the world's leading producer of purpose-bred research animals, continues to generate excellent earnings and cash flow. Its newer contract research services and biomedical business lines give it tremendous growth potential. Consolidation in the pharmaceutical industry is driving more and more companies to outsource aspects of their clinical research, and this works to the decided benefit of Charles River Laboratories. Its biomedical products, which range from endotoxin testing kits to pathogen-free eggs used in vaccine production, also realized impressive market share gains last year. In the skin care sector, Curel brand was the fastest growing hand and body lotion in the U.S. last year. It leveraged Bausch & Lomb's extensive distribution network for OTC health care products, targeted advertising and new products to realize dramatic improvements in sales and profitability. As for our Miracle-Ear hearing aid business, it proved to be an impressive turnaround story in 1996, as revenues rose 9%. We believe the key to continued growth and earnings will be the implementation of a strategy to supplement our strong franchise network with Company-owned stores, along with the commercialization of new technology. We'll continue to closely follow the progress of each of these diverse healthcare businesses to ensure that they're maximizing value for our shareholders. page 18 - - ------- - - -------------------------------------------------------------------------------- Healthcare Key Strategies [bullet] Actively develop the biomedical and contract research services businesses of Charles River Laboratories. [bullet] Commercialize new Miracle-Ear hearing aid technology and expand the network of company-owned stores. [bullet] Grow our Curel skin care business through product expansion and new marketing initiatives. [bullet] Regularly review the financial performance of our healthcare businesses to determine their contribution to shareholder value. - - -------------------------------------------------------------------------------- [GRAPHIC] The Curel brand leads the U.S. hand and body lotion category in growth. [GRAPHIC] Commercialization of new technology and strengthening of retail presence are key to the growth of Bausch & Lomb's hearing aid business. [GRAPHIC] Charles River Laboratories, already the world's leading producer of purpose-bred laboratory animals, is focusing on the development of its biomedical products and services. page 19 ------- Your vision for Bausch & Lomb is to become "Number One in the Eyes of the World." What gives you optimism that the Company will achieve that goal? We consider our vision statement to be aspirational--a means of expressing our commitment to the new direction we have set for the Company and aligning the organization behind a common goal. But, in many respects, the statement also reflects what Bausch & Lomb is today. I can think of no company that generates greater revenues from eye care, and no company in this field that enjoys greater recognition and respect from consumers. We recognize, however, that to achieve our vision of being "number one in the eyes of the world," we have to complete the transformation we have started. We must be a company that is innovative and consumer driven. We must not only react quickly to change in our markets, we must lead change. We must be unwavering in our resolve to find ways to reduce cost in our business, and equally committed to making prudent investments for our long term growth. By doing so, we will be able to better respond to the needs of our consumers and customers, and generate the strong and predictable results that our investors expect. I am confident that we will achieve our vision because I recognize the tremendous resources available to Bausch & Lomb. First, there is the strength of our brands--names such as Ray-Ban, ReNu, Revo, SofLens66, Boston and of course, the Bausch & Lomb name itself. Those brands are the foundation on which we will build our future. The breadth of our portfolio and the leadership positions we enjoy clearly provide leverageable competitive advantage. We also have the distinct advantage of our global presence that permits us to capitalize on the power in our brands. We have already forged key relationships and built equity in the most rapidly growing markets around the world. Most importantly, I am confident in our ability to achieve our vision because of the caliber of the people at Bausch & Lomb. They have been through tremendous change in the past year, and I believe they recognize that the pace of change will only quicken in the future. Although change is never easy, I have been singularly impressed with the quality and commitment I see in the men and women of this Company. [GRAPHIC] page 20 - - ------- 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 57 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 28, 1996, the internal control system was functioning effectively and accomplished the objectives discussed herein. /s/ William H. Waltrip /s/ William M. Carpenter /s/ Stephen C. McCluski William H. Waltrip William M. Carpenter Stephen C. McCluski Chairman President and Senior Vice President Chief Executive Officer 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 four meetings during 1996. 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 page 21 ------- Financial Review ---------------------------------------------------------------------- Dollar Amounts In Millions -- Except Per Share Data This financial review, which should be read in conjunction with the accompanying financial statements, contains management's discussion and analysis of the Company's results of operations, liquidity and progress towards stated financial objectives. 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 8% over the most recent five-year period, total return to shareholders in 1996, 1995 and 1994 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 & Poor's 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. In that regard, the Company recently adopted a new financial management and performance measurement system, Economic Value Added (EVA), which it plans to implement in 1997. EVA combines earnings and capital management objectives into one index by subtracting from earnings a capital charge for the utilization of assets employed to generate those earnings. It aligns business decisions made by the Company with shareholder expectations that capital is being utilized effectively. Comparability Of Business Segment Information Analysis of the Company's operating results requires the consideration of certain significant events as described below. In November 1996, the Company concluded the sale of its dental implant business, which contributed approximately $28, $27 and $22 to healthcare segment revenues in 1996, 1995 and 1994, respectively. Operating earnings from this business were $4, $3 and $2 in 1996, 1995 and 1994, respectively. The Company recorded an after-tax gain of $8 on the sale, which increased earnings per share by $0.15 in the fourth quarter. In September 1996, the Company completed the sale of its Oral Care Division, which marketed the Interplak line of products. The Oral Care Division contributed approximately $22, $51 and $67 in healthcare segment revenues in 1996, 1995 and 1994, respectively. Operating losses from this business were $11, $7 and $18 in 1996, 1995 and 1994, respectively. The Company's third quarter earnings reflected an after-tax loss of $6 or $0.11 per share on the sale. As announced in June 1996, the Company's board of directors approved plans to restructure portions of the eyewear and vision care segments, as well as certain corporate administrative functions and a restructuring charge of $15 before taxes, or $11 after taxes, was recorded. This charge reduced earnings per share by $0.19. In December 1995, the Company's board of directors approved plans to restructure portions of eyewear, healthcare and vision care operations, as well as certain corporate administrative functions and a pre-tax restructuring charge of $27 was recorded. The after-tax impact of this charge was $17, or $0.30 per share. These actions, the major components of which are discussed in Note 2 --Restructuring Charges, are part of the Company's efforts to enhance its competitive position and to reduce the annual impact of general and administrative, logistics and distribution costs. During 1996, these actions resulted in savings of $10 which were largely offset by one-time transition costs and are expected to contribute towards annualized savings of $25 in 1997 and $50 in 1998 and thereafter. As announced on May 1, 1995, the Company completed the sale of its Sports Optics Division, which marketed binoculars, riflescopes and telescopes. Results in 1995 reflect the operations of this business for only three months. The sports optics business contributed approximately $18 and $111 in eyewear segment revenues in 1995 and 1994, respectively; operating earnings from this business were break-even in 1995 and $10 in 1994. Net earnings in 1995 reflected an after-tax gain of $21 or $0.36 per share on the sale. page 22 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- In December 1994, decisions were made fundamentally realigning global oral care operations based on increased competition, a significant decline in market share and operating losses, which greatly reduced estimated future cash flows for this business. As a result, the Company recognized a goodwill impairment charge of $75 with no associated tax benefit. The Company's reported results for the three-year period described in this review include the effect of the significant events described previously. Operating Results By Business Segment Bausch & Lomb's operating results are reported in four business segments: vision care, eyewear, pharmaceuticals and healthcare. The vision care segment includes contact lenses and materials and contact lens solutions. The eyewear segment is comprised of sunglasses, thin film coating services and the divested sports optics business. The pharmaceuticals segment includes prescription ophthalmics and over-the-counter (OTC) medications. The healthcare segment is comprised of biomedical products, hearing aids, skin care products and the divested oral care and dental implant businesses. The following table summarizes the proportion of reported revenues and earnings derived from each business segment. Revenues And Earnings By Business Segment
Revenues Earnings -------------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------ Vision care 45% 42% 40% 76% 59% 86% Eyewear 27% 30% 34% (2%) 16% 44% Pharmaceuticals 10% 9% 7% 12% 14% 15% Healthcare 18% 19% 19% 14% 11% (45%) ================================================================================
A summary of reported sales and earnings by business segment, corporate administration expense and operating earnings, and comparable basis results which exclude the divested sports optics, oral care and dental implant businesses, restructuring costs and goodwill impairment charges described above follows. Unless otherwise specified, amounts in the remainder of this financial review have been prepared using comparable basis results.
1996 1995 1994 ------------------------------------------------------------------------------------------------ Comparable Comparable Comparable As Reported Basis As Reported Basis As Reported Basis - - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales Vision care $ 869.1 $ 869.1 $ 813.7 $ 813.7 $ 749.5 $ 749.5 Eyewear 525.1 525.1 581.4 563.1 649.9 538.9 Pharmaceuticals 189.0 189.0 181.5 181.5 142.3 142.3 Healthcare 343.6 293.9 356.3 278.2 351.0 261.5 ----------------------------------------------------------------------------------------------- Total $1,926.8 $1,877.1 $1,932.9 $1,836.5 $1,892.7 $1,692.2 =============================================================================================== Operating Earnings Vision care $ 182.1 $ 190.7 $ 158.5 $ 161.7 $ 140.7 $ 140.7 Eyewear (5.6) (0.6) 43.7 60.9 72.6 62.2 Pharmaceuticals 28.6 28.6 38.5 38.5 24.7 24.7 Healthcare 34.8 42.5 30.8 39.0 (74.4) 16.7 ----------------------------------------------------------------------------------------------- 239.9 261.2 271.5 300.1 163.6 244.3 Corporate administration (49.1) (47.6) (60.9) (57.9) (43.8) (43.8) ----------------------------------------------------------------------------------------------- Total $ 190.8 $ 213.6 $ 210.6 $ 242.2 $ 119.8 $ 200.5 ===============================================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries page 23 ------- Net Sales Reported revenues for 1996 were $1,927, a decrease of $6 or less than 1% from 1995, reflecting unfavorable currency exchange rate changes which reduced sales in U.S. dollars by 2%. In 1995, reported revenues increased $40 or 2% over 1994, including the favorable effect of changes in currency exchange rates which increased sales in U.S. dollars by 3%. Comparable basis revenues totaled $1,877 in 1996, an increase of $41 or 2% from 1995, including the unfavorable effect of changes in currency exchange rates which decreased revenues in U.S. dollars by 2%. In 1995, sales increased $144 or 9% from 1994. Consolidated reported revenues have increased at compound annual rates of 2% and 5% for the most recent three- and five-year periods, respectively. On a comparable basis, these rates were 5% and 7%, respectively. Operating Earnings Reported operating earnings were $191 in 1996, a decrease of $20 or 9% from 1995. On a comparable basis, operating earnings totaled $214, a decrease of $29 or 12% from the prior year. An increase in operating earnings in the vision care segment was more than offset by reduced earnings in the eyewear and pharmaceuticals segments. Reported operating earnings were $211 in 1995, an increase of $91 or 76% from 1994. Comparable basis operating earnings totaled $242, an increase of $42 or 21% from 1994. The ratio of operating earnings to sales on a comparable basis was 11.4% in 1996, 13.2% in 1995 and 11.8% in 1994. Vision Care Segment Results 1996 Versus 1995 - The vision care segment includes results of the contact lens and lens care businesses, with lenses comprising 43% of the total 1996 revenues and lens care representing 57%. In 1996 revenues in this segment improved $55 or 7%, led by a 17% increase in the sales of contact lenses. These results include the adverse impact of foreign currency rate fluctuations which reduced sales in U.S. dollars by 2% from 1995. Strong gains for planned replacement and disposable (collectively PRP) lenses, such as Optima FW and SofLens66, in all regions and incremental sales of one-day disposable lenses by Award plc more than offset the decline in sales of traditional lenses. Revenues from rigid gas permeable (RGP) lenses were even with 1995, reflecting a 2% gain in the U.S., offset by a 4% decrease in the Asia-Pacific region, primarily attributed to the negative impact of foreign currency rates in Japan. Soft lens solutions reflected modest gains, with revenue growth from ReNu products offsetting declines in traditional solutions such as saline, daily cleaners and enzymatic tablets. Worldwide revenues from RGP solutions declined 5% from 1995, attributed to the timing of promotions. Operating margins in this segment were 21.9% in 1996 compared to 19.9% in 1995. Contact lens earnings were positive for the first time in several years, driven by increased sales and cost reduction efforts. Segment earnings in 1996 were $191 compared to $162 in 1995, an increase of 18%. 1995 Versus 1994 - Revenues in the vision care segment grew 9% over 1994, reflecting 14% growth in worldwide contact lens sales. PRP lens revenues demonstrated significant gains over 1994 levels, most notably in the U.S., Europe and Asia-Pacific regions. Overall sales of traditional soft lenses were relatively even with 1994, reflecting a general market trend and the Company's strategic shift in focus toward PRP lenses. Worldwide revenues of RGP lenses and lens materials grew by 10% and included sales of the new Boston 7 and Boston ES lens materials. RGP solutions registered growth in most geographic regions and included revenues from new products, including Boston Simplicity and Boston Advance solutions. The Company's line of soft lens solutions, including the ReNu brand, advanced more than 10% outside the U.S. Revenues of soft lens solutions within the U.S. declined 4%, which the Company attributed to a trend toward lower retail inventory levels and a reduction in dedicated shelf space in the saline segment of this market. Operating earnings were $162, a 15% improvement over 1994 levels. This reflects significantly reduced operating losses for PRP lenses, resulting from the margin impact of increased sales combined with the decreased spending for advertising and selling. page 24 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Eyewear Segment Results 1996 Versus 1995 - The eyewear segment includes results of the sunglass and optical thin film coating services businesses. Segment revenues declined $38 or 7% from 1995. Adverse foreign currency movements contributed 2% to this decline. New Ray-Ban sunglasses, such as the Sidestreet, Orbs and Inertia styles, and new offerings in the Killer Loop Street Sport and Revo Shapes collections, as well as incremental revenues from the first quarter acquisition of the Arnette sunglass line with products directed toward the sport channel of trade, contributed significantly to total sunglass sales. These positive results were more than offset by the erosion in sales of more traditional product designs, particularly in the Ray-Ban line, by new product supply issues and by a second-half reduction in orders, primarily in the U.S., from the segment's largest customer, Sunglass Hut International. Revenues for thin film coating services declined 30% due primarily to significant competitive challenges outside the U.S. The sunglass category is continuing to transition to more contemporary and sport designs, areas where the Company is expanding its market presence. Being successful in this evolving category requires innovative design and marketing expertise to satisfy changing consumer preferences, combined with flexible product delivery capabilities. As a result, efforts began early in the year to reconfigure the manufacturing process to swiftly respond to changing consumer demands and to lower costs. Eyewear segment losses of $1 were $62 lower than the 1995 earnings amount. Operating margins were (0.1%) in 1996 and 10.8% in 1995. These results reflect the adverse impacts of the sales shortfalls, the continued shift to lower-margin new products, unfavorable manufacturing variances due to reduced production volumes and increased provisions for obsolescence. Margins are expected to rebound in 1997 as restructuring efforts are expected to improve operating efficiencies and reduce fixed costs. 1995 Versus 1994 - Eyewear segment revenues grew $24 or 4% in 1995 to $563 as compared with 1994. Almost 15% of sunglass revenues resulted from new products. 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. Eyewear segment earnings of $61 in 1995 were $1 or 2% lower than comparable 1994 results, and eyewear segment margins were 10.8% in 1995 and 11.5% in 1994. These results reflect the shift in product mix toward lower-margin 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. Segment results also included earnings declines in the thin film coating business, which resulted from increased competition and lower sales to European customers. Pharmaceuticals Segment Results 1996 Versus 1995 - The pharmaceuticals segment consists of results of the prescription pharmaceuticals and OTC pharmaceuticals businesses. Revenues for this segment increased 4% over the prior year. Adverse currency movements impacted worldwide sales in U.S. dollars by 3% as compared to 1995. Within the U.S., sales advanced 17%, largely attributed to the success of recently introduced products including Ocutricin, an antibiotic solution used to treat superficial eye infections, and Minoxidil, a generic version of Rogaine. Crolom, introduced in 1995 to treat vernal conjunctivitis, witnessed double-digit growth for the year. Tobramycin, a generic version of Tobrex, experienced a significant decline in revenues due to heavy competition and a resulting loss in market share, combined with price reductions. Revenues for prescription pharmaceuticals in Europe advanced 5% over 1995 despite uncertainty in the fourth quarter regarding proposed government cutbacks on prescription reimbursements. The Company's line of European OTC pharmaceuticals experienced a 7% decline in revenues versus 1995, 5% of which was due to adverse currency effects. Sales shortfalls were partially attributable to pharmacy inventory reductions brought about by the aforementioned prescription budget regulations. OTC products in the U.S. attained a 5% increase in revenues, benefiting from increased sales of Opcon-A, an antihistamine/decongestant which reflected 16% growth over 1995, and Duolube, a preservative-free ointment used for nighttime relief of dry eyes. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 25 ------- Segment earnings of $29 declined $10 or 26% from the 1995 level. Operating margins in the pharmaceuticals segment were 15.1% in 1996 compared to 21.2% in 1995. Favorable margin impacts of price and volume increases for many of the U.S. generic products were more than offset by increased spending for advertising, selling and research and development in 1996, combined with the impact of unfavorable currency movements in Europe. Research and development spending increased 45% versus prior year levels as the Company moved forward with its growth plan for generic and proprietary ophthalmic products. 1995 Versus 1994 - Worldwide segment revenues improved 28%, led by results for products in the U.S., including Tobramycin, Levobunolol, a generic version of Betagan, Crolom and growth for prescription pharmaceuticals in Europe. Improved results were also achieved for the Company's line of European OTC pharmaceuticals. Contributing to the double-digit increase over 1994 was the strong performance of hayfever medications and sleeping aids, as well as analgesic and nutraceutical products, including the fourth quarter launch of Vivivit Multi. Eye care products in the U.S. attained a 22% increase in sales, reflecting improved sales of Opcon-A, which achieved a significant market position. Segment earnings of $39 improved $14 as compared to the 1994 level of $25 and operating margins increased from 17.4% to 21.2%. The favorable results display the improvement in U.S. prescription pharmaceutical operations brought about by strong sales growth of new products and cost savings realized through restructuring actions taken in 1994. Partially offsetting these positive factors were increased expenditures for research and development as the Company continued to invest in this key product segment. Healthcare Segment Results 1996 Versus 1995 - The healthcare segment experienced 6% revenue growth over 1995 with gains in all ongoing product lines. This segment includes results for biomedical products, hearing aids and skin care products, with those products contributing 68%, 17% and 15%, respectively, of 1996 segment revenues. Revenues increased 6% for the Company's biomedical business, reflecting the impact of incremental sales of purpose-bred laboratory animals and other product line extensions. Results in this segment were negatively impacted by foreign currency rate fluctuations which reduced sales in U.S. dollars by 5% from 1995. Revenues for the Miracle-Ear line of hearing aids rose 9% due to sales of new in-the-ear products and increased sales in Company-owned stores. Skin care revenues advanced 5% for the year, led by 15% growth in the Curel product line, including Alpha Hydroxy and Nutrient Rich products, offset by a 12% decline in the Soft Sense line due to reduced consumer demand. Healthcare segment earnings rose 9% with improvements in the hearing aid, skin care and biomedical businesses resulting from the margin impact of sales increases, slightly offset by higher operating expenses. While the hearing aid business showed a slight loss in 1996, this business continues to show improvement in operating results. 1995 Versus 1994 - Healthcare segment revenues rose 6% as a result of gains in all ongoing product lines. A 7% improvement in sales of biomedical products reflected increased shipments of specific pathogen-free eggs and contract research products and services, as well as the favorable impact of foreign currency rate fluctuations on animal operations outside the U.S. Hearing aid revenues rose 20% in response to improved overall market conditions and encouraging consumer demand for the Mirage completely in-the-canal product and a new line of programmable hearing aids. Skin care revenues advanced 6% and included results from the Curel Alpha Hydroxy product line introduced in 1995. Healthcare segment earnings more than doubled over 1994, reflecting significant gains in both the biomedical and hearing aid product lines, the latter due to the sales increase and decreased spending for advertising and selling. Costs And Expenses The ratio of cost of products sold to sales was 45.0% in 1996, compared to 43.9% in 1995 and 46.2% in 1994. The unfavorable ratio in 1996 resulted from a decline in sunglass sales, combined with a shift in sales mix toward lower-margin sunglass styles and PRP lenses. The favorable ratio in 1995 reflected sales of higher-margin hearing aids and pharmaceuticals products, which more than offset the reduced margins on new sunglass styles and PRP lenses. page 26 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Selling, general and administrative expenses, including corporate administration, were 39.8% of sales in 1996, 39.7% in 1995 and 38.8% in 1994. Increases in advertising and marketing expenses in 1996 were offset by an overall decrease in general and corporate administration. General and administrative expenses included one-time period costs, which were more than offset by the benefit of restructuring efforts undertaken during 1996 and 1995. Increased levels of advertising and promotional activities during 1996 and 1995 included additional support for contact lenses and sunglasses, primarily outside the U.S. Corporate administration expenses totaled $48 in 1996, compared with $58 in 1995 and $44 in 1994. This represented 2.5% of sales in 1996, 3.2% in 1995 and 2.6% in 1994. The 1995 expense included $7 for retirement and other benefits for the Company's former Chief Executive Officer. When this charge is excluded, 1995 corporate administration expenses represented 2.8% of sales. The improvement in 1996 includes the benefit of restructuring efforts. Research and development expenses totaled $71 in 1996, an increase of $10 or 16% over 1995. In 1994, these costs were $55. The increase in the 1996 levels of research and development reflected significant investments in the vision care and pharmaceuticals businesses. 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, dental implant and oral care businesses and the costs associated with restructuring and goodwill impairment charges are summarized below:
1996 1995 1994 --------------------------------------------------------------------------------------------- Comparable Comparable Comparable As Reported Basis As Reported Basis As Reported Basis - - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales Europe, Middle East & Africa $ 494.8 $ 483.8 $ 471.0 $ 457.4 $ 414.2 $ 395.6 Asia-Pacific 341.0 336.5 345.3 337.2 303.7 297.8 Canada & Latin America 114.3 110.5 119.0 112.3 129.5 111.2 U.S. 976.7 946.3 997.6 929.6 1,045.3 887.6 --------------------------------------------------------------------------------------------- Total $1,926.8 $1,877.1 $1,932.9 $1,836.5 $1,892.7 $1,692.2 ============================================================================================= Operating Earnings Europe, Middle East & Africa $ 74.3 $ 80.6 $ 93.2 $ 98.1 $ 91.9 $ 95.3 Asia-Pacific 35.8 37.2 43.6 42.7 29.9 32.6 Canada & Latin America 3.6 3.7 (2.0) (1.2) 6.5 6.7 U.S. 77.1 92.1 75.8 102.6 (8.5) 65.9 --------------------------------------------------------------------------------------------- Total $ 190.8 $ 213.6 $ 210.6 $ 242.2 $ 119.8 $ 200.5 =============================================================================================
Bausch & Lomb Incorporated and Consolidated Subsidiaries page 27 ------- The following discussion addresses trends noted on a comparable basis. Sales outside the U.S. totaled $931 in 1996, an increase of $24 or 3% over 1995. Non-U.S. sales represented 50% of consolidated revenues in 1996, 49% in 1995 and 48% in 1994. European revenues in 1996 increased $26 or 6% from 1995. Strong contact lens performance, led by PRP lenses and incremental sales of one-day disposable lenses by Award plc, drove these results, as increases in shipments of solutions were somewhat offset by declines in price. Sales in the Asia-Pacific region declined $1 or less than 1%, reflecting the unfavorable impact of currency exchange rate changes in Japan. Excluding Japan, Asia-Pacific showed double-digit sales growth in both contact lenses and lens care solutions. Sunglass sales were below prior year due primarily to significant competitive pressure. In Latin America and Canada sales declined $2 or 1% from 1995 levels. Moderate growth for soft lens solutions and PRP lenses in Canada were offset by decreased sunglass sales throughout most of the region. U.S. revenues totaled $946, an increase of $17 or 2%, including incremental sales from Arnette. Vision care sales showed improvement over 1995 with growth in the Optima FW, Gold Medalist Toric and SofLens66 contact lens lines. Skin care also showed improvement due primarily to an increase in Curel lotion sales. Sunglass sales were 7% below 1995 as significant shortfalls in traditional styles were only partially offset by the success of new products. In addition, reduced second-half orders from Sunglass Hut International contributed significantly to the decline in U.S. sales. Sales in markets outside the U.S. totaled $907 in 1995, an increase of $102 or 13% over 1994. European revenues increased 16% and benefited from the favorable impact of currency movements, particularly in Germany. This progress also reflected improved demand for sunglasses, OTC medications, PRP lenses and lens care products. The Asia-Pacific region reported an increase in sales of 13% over 1994, primarily due to results in Japan attributable to favorable currency exchange rates, as well as increased sales of sunglasses, contact lenses and lens care products. Elsewhere in the region, revenues were essentially even with 1994, as sales increases for PRP lenses and lens care solutions and favorable foreign currency fluctuations were offset by declines for sunglasses. In Canada and Latin America, 1995 revenues decreased $1 or 1% as compared to 1994, due primarily to shortfalls in Mexico, which more than offset improvements in Brazil and Canada. U.S. sales totaled $930 in 1995, an increase of $42 or 5% from 1994. Revenue increases for PRP 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. Operating earnings in 1996 in markets outside the U.S. were $121, a decrease of $18 or 13% from 1995, and represented 57% of total operating earnings in 1996, 58% in 1995 and 67% in 1994. The decline in earnings in 1996 was attributed to sales of lower-margin new sunglass styles, adverse currency impacts and an increase in advertising expenditures. U.S. operating earnings were $92 in 1996. This represents a $10 or 10% decrease from 1995, due primarily to the margin impact of decreased sunglass and solutions sales, partially offset by improved profitability in contact lenses. Operating earnings in 1995 in markets outside the U.S. were $140, an increase of $5 or 4% over 1994. The increase 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. U.S. operating earnings of $103 in 1995 increased $37 or 56% over 1994. This progress was led by improved results for sunglasses, hearing aids, PRP lenses and pharmaceuticals. 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 1995. page 28 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Other Income And Expense Interest and investment income was $43 in 1996, $39 in 1995 and $35 in 1994. In 1996, the increase over 1995 was primarily due to interest received on an income tax refund and to higher income generated from interest rate swaps, partially offset by lower overall interest rates. The 1995 increase over 1994 was attributable to higher investment levels and interest rates, partially reduced by lower income generated by an interest rate swap agreement. Interest expense was $52 in 1996, $46 in 1995 and $41 in 1994. The 1996 increase over 1995 was primarily attributable to higher debt levels offset by lower interest rates. The increase in 1995 over 1994 was driven primarily by higher interest rates. The Company pursues a neutral strategy with respect to interest rate movements. Its policy is to maintain, within reasonable parameters, a balance between floating-rate investments, which are predominately held outside the U.S., and floating-rate debt, which represents primarily U.S. obligations. To the extent this natural hedge position becomes unbalanced, the Company may enter into interest rate swap agreements or undertake long-term fixed-rate borrowings, the proceeds from which may repay short-term debt. As a result of this practice, the Company's exposure to the normal rise and fall of U.S. interest rates is mitigated. The Company does not engage in foreign currency speculation. Its objective is to effectively hedge all identified transaction exposures on an after-tax basis to minimize the impact of exchange rate movements on operating results. The Company selectively hedges exposures arising in countries with hyperinflationary economies. In 1996, net foreign currency gains of $2 reflected transaction gains of $3 offset by translation losses of $1. In 1995, net losses were $6 ($2 transaction losses and $4 translation losses) and in 1994 net gains were $3 ($16 transaction gains offset by $13 translation losses). The favorability in 1996 was primarily due to premium income on foreign exchange contracts hedging investments in selected subsidiaries and reduced translation losses resulting from increased economic stability in hyperinflationary economies, primarily Mexico and Brazil. The unfavorability in 1995 compared to 1994 was due to lower premium income on Irish pound contracts partially offset by lower translation losses in hyperinflationary economies, primarily Brazil. The Company's assessment of the probable financial impact of certain legal matters described in Note 15 -- Litigation led the Company to record pre-tax litigation provisions of $16 and $22 in 1996 and 1995, respectively. Income Taxes The Company's reported tax rate was 37.7% in 1996 as compared to 36.9% for 1995 and 52.6% for 1994. Excluding the goodwill impairment charge for which there was no associated tax benefit, the 1994 reported rate would have been 32.0%. The higher 1996 and 1995 rates reflect shifts in geographic earnings and the inability to fully utilize foreign tax credits in each of those years. The loss on divestiture of the oral care business and gain on divestiture of the dental implant business also impacted the 1996 reported tax rate. Net Earnings And Earnings Per Share Reported net earnings were $83 or $1.47 per share in 1996, compared to $112 or $1.94 per share in 1995 and $31 or $0.52 per share in 1994. Excluding the loss on sale of the oral care business, the gain on sale of the dental implant business and restructuring expense, 1996 net earnings would have been $92 or $1.62 per share. Comparable results of $109 or $1.88 per share in 1995 and $106 or $1.78 per share in 1994 exclude the after-tax gain on sale of the Sports Optics Division, restructuring charges in 1995 and the 1994 goodwill impairment charge. Litigation provisions further reduced earnings by $10 or $0.18 per share after taxes in 1996 and $14 or $0.24 per share after taxes in 1995. In addition, expenses related to retirement and benefit costs for the Company's former Chief Executive Officer reduced 1995 earnings by $4 or $0.08 per share after taxes. Excluding these results from comparisons, 1996 earnings would have been $102 or $1.80 per share, a decrease of $25 or $0.40 per share from 1995. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 29 ------- Liquidity And Financial Resources The Company evaluates its liquidity from several perspectives, including its ability to generate earnings, positive cash flows and free cash flow, its financial position, its access to financial markets and the adequacy of working capital levels. Cash Flows From Operating Activities Cash provided by operating activities totaled $89 in 1996, a significant decrease from 1995. The change was primarily attributable to lower earnings, an increase in inventory primarily due to reduced sunglass sales, an increase in accounts receivable primarily due to timing of collections and reduced levels of accounts payable and income taxes due to timing of payments. 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 1996 was negative $47, versus a positive $201 for 1995. This decrease was attributable primarily to the operating factors cited above and increased capital expenditures in 1996. In 1995, operating activities generated $290 in cash flow, a $23 increase from the prior year. The modest improvement from 1994, a year which also generated strong operating cash flow, was primarily attributable to cash realized from the net settlement of foreign currency hedge contracts in 1995 and the comparison against cash used to complete restructuring actions in 1994. These factors were moderated by the positive cash flow in 1994 generated by collections on receivables. Cash Flows From Investing Activities Cash used in investing activities was $142 in 1996, a reduction of $22 from 1995. Capital expenditures totaled $130 in 1996 and included spending for new contact lens technology and enhanced sunglass manufacturing processes. Cash outflows for acquisitions, which were $2 in 1995, increased to $86 and included the purchase of Arnette Optic Illusions, a U.S.-based company marketing sunglasses to the sport market, and Award plc, a manufacturer of a high-water content daily disposable lens, based in Scotland. The divestitures of the Company's oral care and dental implant businesses increased cash flow by $78. In 1995, cash used in investing activities was $165. Capital expenditures were $95 with major projects including new contact lens cast molding capacity and sunglass manufacturing improvements. Other investing activities included the purchase of $136 in securities of a triple-A rated financial institution and the divestiture of the Sports Optics Division, which generated cash after taxes of $61. Cash Flows From Financing Activities In 1996, $29 in cash was provided by financing activities. Cash paid for dividends, repayment of long-term debt and repurchases of Common shares was more than offset by net proceeds from notes payable and the issuances of long-term debt under the Company's medium-term note program. During 1996, the Company repurchased 1,836,200 Common shares, exhausting all share repurchases previously authorized by the board of directors. In December 1996, the board of directors authorized the repurchase of an additional 250,000 Common shares, none of which had been purchased prior to year end. Net cash used for financing activities in 1995 was $161. Funds were used to repurchase Common shares, pay dividends and repay long-term debt. Proceeds from debt, primarily due to an increase in U.S. net short-term borrowings, and inflows related to employee stock activity partially offset cash used for other financing activities. 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, which the Company uses to lower the cost of capital, has increased in importance since the transfer of $561 of liquid funds into long-term investments during 1995 and 1994. These transfers resulted in the Company's net debt, or borrowings less cash, cash equivalents and short-term investments, to rise significantly. In total, short- and long-term borrowings increased by $144 to $718 in 1996. The ratio of total debt to equity stood at 81.5% and 61.8% at year end 1996 and 1995, respectively. Cash and short-term investments totaled $168 in 1996 and $195 in 1995. page 30 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- 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 & Poor's and P-2 by Moody's Investor Services. On March 3, 1997, Standard & Poor's downgraded the Company's long-term debt rating from A to A minus, thereby bringing it in line with the Moody's A-3 rating. The Company believes that this does not change its ability to raise money in the capital markets at reasonable costs. To support its liquidity requirements, the Company maintains U.S. revolving credit agreements, typically with 364-day credit terms totaling $290. No debt was outstanding under these agreements at December 28, 1996. The availability of adequate credit facilities provides the Company with flexibility to meet its obligations, fund capital expenditures and invest in growth opportunities. Working Capital Working capital was $19 at year end 1996 as compared to $71 at year end 1995. The current ratio was 1.0 and 1.1 at year end 1996 and 1995, respectively. Dividends The annual dividend declared on Common stock was $1.04 per share in 1996, $1.01 per share in 1995 and $0.955 per share in 1994. 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. The Company has a goal of maintaining a payout rate of between 30% and 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 9.2% in 1996, compared with 11.9% in 1995 and 3.2% in 1994. These results include the impact of non-recurring charges. Excluding these amounts, return on equity would have been 10.3% in 1996, 11.7% in 1995 and 11.0% in 1994. The decrease in 1996 reflected lower earnings in the eyewear segment. The improvement in 1995 reflected improved operating performance in the healthcare, pharmaceuticals and vision care segments. Return on average capital employed was 7.2% in 1996, 9.2% in 1995 and 3.8% in 1994. Excluding non-recurring charges, return on capital would have been 7.8% in 1996, 9.1% in 1995 and 8.4% in 1994. The changes for both 1996 and 1995 were due primarily to the operating results discussed above, as well as to increases in the levels of debt on a year-over-year basis. 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. Outlook Bausch & Lomb expects its sales and operating earnings performance in 1997 to move forward consistent with its stated multi-year financial goals. Sales in the vision care segment are expected to benefit from continued growth in contact lenses, particularly PRP lenses, as the Company continues to increase product supply and expand its marketing efforts in the U.S., Europe and Asia-Pacific regions. International sales of lens care products are expected to increase, while sales in the U.S. are expected to remain relatively flat due to increased private label competition. The Company will continue to reduce structural and product costs in an effort to improve margins as the market continues to migrate toward lower-margin PRP lenses. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 31 ------- 1997 will be an important year for the eyewear segment. In an industry where consumer preferences are rapidly changing, it has become increasingly difficult to predict short-term trends and the shift in preference from traditional to newer styles occurred more rapidly than anticipated. Efforts began early in 1996 to reconfigure the manufacturing process in order to swiftly respond to changing consumer demands and to lower costs. The establishment of three vertically-integrated product delivery centers to serve the Company's major global markets is expected to be finalized during 1997. Once this manufacturing strategy is operational, it should improve the Company's speed to market, flexibility and profitability. The Company plans to grow this segment through the continued international expansion of the Revo, Killer Loop, Arnette and Liz Claiborne lines and the launch of Porsche Design sunglasses. Efforts in 1997 will include stabilizing the Ray-Ban product line by revitalizing its image and retail presence. Revenues in the Ray-Ban product line are expected to be relatively consistent with 1996 levels, with the growth of new styles such as Orbs and Sidestreet and the launch of new products in 1997 offsetting the continued decline in traditional styles. Operating earnings in this segment are expected to be positive, reflecting the margin impact of incremental sunglass sales as well as the benefits of restructuring efforts undertaken during 1996. Within the pharmaceuticals segment, the Company is projecting to increase revenues worldwide, through introduction of new products such as Lotemax. This growth will be contingent upon receipt of required regulatory approvals and the Company's ability to shift its product portfolio from generics toward a greater percentage of higher-margin proprietary pharmaceuticals. Operating earnings are expected to improve during 1997; an increase in research and development expenses is expected to be more than offset by a planned reduction of fixed operating expenses within the U.S. and Europe. Revenues in the healthcare segment also are forecasted to grow during 1997 through product line extensions in the biomedical business and projected growth in hearing aid revenues due to increased direct sales from Company-owned stores. Operating earnings are projected to improve moderately, due to the margin impact of the increased biomedical sales. Earnings in the hearing aid business are forecasted to be slightly positive in 1997. Consolidated earnings should continue to benefit from the restructuring efforts announced during 1996 and 1995, as the Company strives to reduce annualized costs in 1997 and 1998. In addition, the Company announced the retention of a consulting firm to assist in identifying further cost reduction opportunities and organizational efficiencies during the first half of 1997. These efforts will be critical to reducing the overall cost structure and supporting the Company's strategy to become a globally managed eye care business. Net financing expenses are expected to be comparable with 1996 after excluding the impact of the interest received on the income tax refund. Interest expense is contingent on the level of debt, which increased during 1996, and on interest rates. Currency gains and losses are also dependent on trends in interest rates, primarily in Ireland, Japan, Germany and the U.S. and on exchange rate changes in certain hyperinflationary economies, including Mexico and Brazil. The Company makes no attempts to predict changes in exchange rates. The Company is projecting to generate positive cash flow, with free cash flow approximating earnings, as the Company will aggressively manage operating assets. An important element of this is the effective management of sunglass inventories. Capital expenditures are forecasted to total approximately $125 in 1997, with more than half of this amount being invested in projects to improve manufacturing technologies and increase capacity within the contact lens business. Information Concerning Forward-Looking Statements The statements in this financial review which are not historical facts are forward-looking statements that involve risks and uncertainties. The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of the risks and uncertainties and the possible impact of these factors on future results of operations. Actual results, performance or achievements of the Company may be materially different from the projected results, per formance or achievements expressed or implied by such risks. Among the key factors that may have a direct bearing on the Company's results are: page 32 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Global Economic And Political Conditions The Company experiences fluctuations in operating results due to seasonality and general economic conditions in the global market place. Fluctuating exchange rates between the U.S. and foreign currencies, particularly in those countries in Europe and Asia where the Company has several principal manufacturing plants, may have a material adverse effect on the Company's future international sales and consolidated results of operations. Additionally, there is uncertainty in the economic outlook in the Asia-Pacific region, particularly due to Hong Kong reverting to China rule, as the Company has its North Asia headquarters, the Asia Distribution Center and a sunglass manufacturing facility in Hong Kong. Customer Concentration The Company's two largest customers together comprised almost 10% of the Company's revenues in 1996, and one of these customers, Sunglass Hut International, comprised over 15% of the Company's eyewear segment revenues. A reduction in orders from these or other of the Company's major customers could have a material adverse effect on the Company's businesses in future periods. Product Development And Introduction The vision care and eyewear industries are characterized by rapid changes in technology and consumer preference. The Company believes that its future results will depend largely upon its ability to offer products that compete favorably with respect to price, demand, performance and innovative design. This in turn is affected by the Company's ability to develop new manufacturing technologies and to timely develop new products and gain acceptance of those products. The Company has observed a trend among contact lens wearers to switch from traditional lenses to lower-margin products, such as planned replacement and disposable lenses. The Company's ability to improve profitability in 1997 and beyond will depend heavily on the ability to reduce the cost of producing these lenses. Success in the eyewear area will require innovative design, marketing expertise and flexible delivery and logistical capabilities. An inability to reduce high levels of inventory of certain eyewear styles or delays or difficulties with new product introductions or product enhancements could have a material adverse effect on the Company's future business results. Product Concentration The Company derives a substantial portion of its revenues from sales of vision care solutions and eyewear. Any factor adversely affecting sales of vision care solutions and eyewear, including such factors as product performance, changing trends in consumer preferences and tastes, consumer demand, price competition and growth of private label competition for solutions, could have a material adverse effect on the Company's future business results. Regulatory Approval The Company is subject to risks associated with future adverse changes in the laws and regulations affecting products, taxes, the environment and other gove-+ rnmentally regulated areas. In particular, growth in the pharmaceuticals business is contingent upon obtaining necessary regulatory approvals. In addition, this business anticipates shifting its current product portfolio toward a more even balance between higher-margin proprietary pharmaceuticals and lower-margin generic pharmaceuticals. Failure to shift the portfolio to a more even balance, delay in regulatory approval and increased competition in the generic pharmaceuticals business could have a material adverse impact on the Company's future business results. General Litigation The cost of legal proceedings instituted by or against the Company could negatively impact future results of operations. Costs And Expenses Risks associated with the Company's cost of manufacturing products and operating and administrative expenses could be material to the Company's consolidated financial results. In particular, expenses such as pricing and the availability of equipment, material and supplies and the cost of capital could have a significant adverse effect on results of operations. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 33 ------- Quarterly Information Quarterly Results The following table presents reported 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) Sales Profit (Loss) Per Share - - ------------------------------------------------------------------------------------------------------------------------------------ 1996 First $ 469.3 $ 261.4 $ 22.5 $ 0.39 Second 545.5 311.8 30.3(1) 0.54(1) Third 477.2 257.4 14.4(2) 0.25(2) Fourth 434.8 223.9 15.9(3) 0.29(3) ------------------------------------------------------------------------------------- Total $1,926.8 $1,054.5 $ 83.1 $ 1.47 ===================================================================================== 1995 First $ 465.6 $ 247.2 $ 20.3 $ 0.34 Second 535.4 301.4 51.6(4) 0.89(4) Third 476.8 271.3 43.5 0.75 Fourth 455.1 253.0 (3.4)(5) (0.04)(5) ------------------------------------------------------------------------------------- Total $1,932.9 $1,072.9 $ 112.0 $ 1.94 ===================================================================================== 1994 First $ 439.4 $ 234.7 $ 35.9 $ 0.60 Second 485.6 262.4 33.9 0.57 Third 486.1 238.0 23.4 0.39 Fourth 481.6 244.3 (62.1)(6) (1.04)(6) ------------------------------------------------------------------------------------- Total $1,892.7 $ 979.4 $ 31.1 $ 0.52 =====================================================================================
(1) Includes the after-tax effect of restructuring charges of $10.9 or $0.19 per share. (2) Includes the after-tax effect of a litigation provision of $10.0 or $0.18 per share and the after-tax loss on sale of the Oral Care Division of $6.3 or $0.11 per share. (3) Includes the after-tax gain on sale of the dental implant business of $8.5 or $0.15 per share. (4) Includes the after-tax gain on sale of the Sports Optics Division of $20.8 or $0.36 per share and the after-tax charge of a litigation provision of $10.6 or $0.18 per share. (5) Includes the after-tax effect of restructuring charges of $17.4 or $0.30 per share, after-tax effect of a litigation provision of $3.6 or $0.06 per share and the after-tax effect of CEO retirement charge of $4.4 or $0.08 per share. (6) Includes goodwill impairment charge, with no associated tax benefit, of $75.0 or $1.26 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:
1996 1995 1994 Price Per Share Price Per Share Price Per Share -------------------------------------------------------------------------------------------- High Low High Low High Low - - -------------------------------------------------------------------------------------------------------------------- First $41 3/8 $37 $36 1/4 $30 7/8 $53 7/8 $47 1/2 Second 44 1/2 36 1/8 42 1/4 35 1/4 52 37 1/8 Third 43 1/8 32 1/2 44 1/2 39 1/2 39 3/4 34 1/4 Fourth 38 1/4 32 1/2 41 1/8 32 1/4 39 3/8 30 5/8 ====================================================================================================================
page 34 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Statement Of Earnings ----------------------------------------------------------------------
For The Years Ended December 28, 1996, December 30, 1995 and December 31, 1994 Dollar Amounts In Millions-- Except Per Share Data 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales $1,926.8 $1,932.9 $1,892.7 Costs And Expenses Cost of products sold 872.3 860.0 913.3 Selling, administrative and general 773.1 770.0 724.2 Research and development 75.5 65.6 60.4 Restructuring charges 15.1 26.7 -- Goodwill impairment charge -- -- 75.0 -------------------------------------------- 1,736.0 1,722.3 1,772.9 -------------------------------------------- Operating Earnings 190.8 210.6 119.8 -------------------------------------------- Other Expense (Income) Interest and investment income (42.8) (39.0) (35.3) Interest expense 51.7 45.8 41.4 (Gain) loss from foreign currency, net (1.6) 6.2 (2.6) Gain on divestitures (1.5) (35.9) -- Litigation provision 16.1 21.7 -- -------------------------------------------- 21.9 (1.2) 3.5 -------------------------------------------- Earnings Before Income Taxes And Minority Interest 168.9 211.8 116.3 Provision for income taxes 63.7 78.1 61.1 -------------------------------------------- Earnings Before Minority Interest 105.2 133.7 55.2 Minority interest 22.1 21.7 24.1 -------------------------------------------- Net Earnings 83.1 112.0 31.1 Retained Earnings At Beginning Of Year 900.1 846.2 871.7 Cash Dividends Declared -- Common Stock, $1.04 per share for 1996 ($1.01 for 1995 and $0.955 for 1994) (58.5) (58.1) (56.6) -------------------------------------------- Retained Earnings At End Of Year $ 924.7 $ 900.1 $ 846.2 ============================================ Earnings Per Common Share $ 1.47 $ 1.94 $ 0.52 ============================================ Average Shares Outstanding (000s) 56,552 57,852 59,739 =================================================================================================================================== See Notes To Financial Statements
Bausch & Lomb Incorporated and Consolidated Subsidiaries page 35 ------- Balance Sheet ----------------------------------------------------------------------
December 28, 1996 and December 30, 1995 Dollar Amounts In Millions -- Except Per Share Data 1996 1995 - - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current Assets Cash, cash equivalents and short-term investments $ 167.8 $ 194.6 Trade receivables, less allowances of $13.3 and $11.2, respectively 268.4 250.6 Inventories, net 339.8 304.3 Recoverable income taxes 6.0 -- Deferred taxes, net 48.6 82.6 Other current assets 117.0 98.3 ------------------------------ 947.6 930.4 Property, Plant And Equipment, net 566.7 550.4 Goodwill And Other Intangibles, less accumulated amortization of $83.8 and $96.6, respectively 390.9 381.5 Other Investments 560.3 561.2 Other Assets 137.9 126.6 ------------------------------ Total Assets $ 2,603.4 $ 2,550.1 ============================== Liabilities And Shareholders' Equity Current Liabilities Notes payable $ 394.1 $ 284.5 Current portion of long-term debt 88.0 99.0 Accounts payable 71.1 81.9 Accrued compensation 82.2 79.8 Accrued liabilities 293.7 275.9 Federal and foreign income taxes payable -- 38.4 ------------------------------ 929.1 859.5 Long-Term Debt, less current portion 236.3 191.0 Other Long-Term Liabilities 124.0 139.9 Minority Interest 432.1 430.4 ------------------------------ Total Liabilities 1,721.5 1,620.8 ------------------------------ Shareholders' Equity 4% Cumulative Preferred stock, par value $100 per share -- -- Class A Preferred stock, par value $1 per share -- -- Common stock, par value $0.40 per share, 60,198,322 shares issued 24.1 24.1 Class B stock, par value $0.08 per share, 1,150,409 shares issued (1,268,578 shares in 1995) 0.1 0.1 Capital in excess of par value 96.1 107.8 Retained earnings 924.7 900.1 Common and Class B stock in treasury, at cost, 5,944,982 shares (4,525,844 shares in 1995) (230.5) (178.7) Other shareholders' equity 67.4 75.9 ------------------------------ Total Shareholders' Equity 881.9 929.3 ------------------------------ Total Liabilities And Shareholders' Equity $2,603.4 $2,550.1 =================================================================================================================================== See Notes To Financial Statements
page 36 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Statement Of Cash Flows ----------------------------------------------------------------------
For The Years Ended December 28, 1996, December 30, 1995 and December 31, 1994 Dollar Amounts In Millions 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net earnings $ 83.1 $112.0 $ 31.1 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 92.6 89.2 82.4 Amortization 20.7 16.1 16.9 Goodwill impairment charge -- -- 75.0 Change in deferred income taxes 23.2 (44.8) 36.8 Gain on divestitures, net of taxes (2.2) (20.8) -- Stock compensation expense 1.3 5.6 1.4 Provision for litigation expense, net of taxes 10.0 14.2 -- Restructuring charges, net of taxes 10.9 17.4 -- Loss on retirement of fixed assets 2.9 3.2 13.0 Exchange (gain) loss (6.4) 8.2 (0.2) Changes in assets and liabilities: Trade receivables (22.4) 8.6 82.4 Inventories (45.1) (18.2) 7.7 Other current assets (23.9) 16.6 3.8 Accounts payable and accrued liabilities (7.2) 41.8 (50.2) Income taxes (40.8) 40.6 (55.2) Other long-term liabilities (7.4) 0.3 22.4 ------------------------------ Net cash provided by operating activities 89.3 290.0 267.3 ------------------------------ Cash Flows From Investing Activities Payments for purchases of property, plant and equipment (130.3) (95.5) (84.8) Proceeds from sale of equipment 9.6 -- -- Net cash paid for acquisition of businesses (85.7) (1.9) (29.1) Net cash received from divestitures 77.7 60.5 -- Other investments -- (136.0) (425.0) Other (13.8) 8.0 (13.2) ------------------------------ Net cash used in investing activities (142.5) (164.9) (552.1) ------------------------------ Cash Flows From Financing Activities Repurchases of Common and Class B shares (67.8) (94.1) (20.6) Exercise of stock options 5.2 5.4 8.1 Net proceeds from notes payable 111.4 32.3 29.6 Proceeds from issuance of long-term debt 135.2 0.6 11.1 Repayment of long-term debt (96.4) (47.8) (24.3) Payment of dividends (58.9) (57.8) (55.2) ------------------------------ Net cash provided by (used in) financing activities 28.7 (161.4) (51.3) ------------------------------ Effect of exchange rate changes on cash, cash equivalents and short-term investments (2.3) (1.6) 22.6 ------------------------------ Net decrease in cash, cash equivalents and short-term investments (26.8) (37.9) (313.5) ------------------------------ Cash, Cash Equivalents And Short-Term Investments, Beginning Of Year 194.6 232.5 546.0 ------------------------------ Cash, Cash Equivalents And Short-Term Investments, End Of Year $167.8 $194.6 $232.5 =================================================================================================================================== See Notes To Financial Statements
Bausch & Lomb Incorporated and Consolidated Subsidiaries page 37 ------- Notes To Financial Statements ---------------------------------------------------------------------- Dollar Amounts In Millions -- Except Per Share Data 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. For example, estimates are used in determining valuation allowances for uncollectible accounts receivable, obsolete inventory and deferred income taxes. Actual results could differ from those estimates. Cash And Cash Equivalents Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost or market, generally using the first-in, first-out (FIFO) method. However, cost is determined by using the last-in, first-out (LIFO) method for certain U.S. inventories. Property, Plant And Equipment Property, plant and equipment, including improvements that significantly add to productive capacity or extend useful life, are recorded at cost, while maintenance and repairs are expensed currently. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 30 to 40 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the lease periods. Goodwill Goodwill is amortized on a straight-line basis over periods ranging from 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 Revenues are generally recognized when products are shipped. The Company has established programs which, under specified conditions, enable customers to return product. The Company establishes liabilities for estimated returns and allowances at the time of shipment. In addition, accruals for customer discounts and rebates are recorded when revenues are recognized. Stock-Based Compensation The Company measures compensation cost for its stock-based compensation plans under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," disclosure of compensation costs on the basis of fair value is presented in Note 14 -- Stock Compensation Plans. Advertising Expense External costs incurred in producing media advertising are expensed the first time the advertising takes place. Promotional or advertising costs associated with customer support programs are accrued when the related revenues are recognized. At December 28, 1996 and December 30, 1995, $5.8 and $6.4 of deferred advertising costs representing production and design costs for advertising to be run in the subsequent fiscal year, were reported as other current assets. Advertising expenses of $241.8, $232.5 and $211.0 were included in the Company's results of operations for 1996, 1995 and 1994, respectively. page 38 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Start-Up Costs One-time, incremental out-of-pocket expenditures directly related to and incurred during the start-up phase of major internal projects are deferred and amortized over future periods. Upon conclusion of the start-up period, these costs are amortized on a straight-line basis over periods of no more than three years. Recoverability of these costs is assessed on an ongoing basis and writedowns to net realizable value are recorded as necessary. At December 28, 1996 and December 30, 1995, $4.3 and $9.5 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 SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and accordingly, any unrealized holding gains and losses, net of taxes, are excluded from income and recognized as a component of other shareholders' equity until realized. Fair value of the securities is determined based on market prices or using discounted cash flows and investment risk. Foreign Currency Translation Assets and liabilities of certain non-U.S. subsidiaries are translated at current exchange rates, and related revenues and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded in shareholders' equity. Financial results of non-U.S. subsidiaries in countries with highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in net earnings, along with all transaction gains and losses for the period. Derivative Financial Instruments Derivative financial instruments are utilized to hedge interest rate and foreign exchange risks and are not held or issued for trading purposes. Gains and losses on hedges of transaction exposures are included in income in the period in which exchange rates change; those related to hedges of foreign currency firm commitments are deferred and recognized in the basis of the transaction when completed while those on forward contracts hedging non-U.S. equity investments are offset against the currency component in shareholders' equity. The Company also periodically enters into interest rate swap and cap agreements to effectively limit interest rate exposure. Net payments or receipts are accrued into other current assets and accrued liabilities and recorded as adjustments to interest expense or as interest income. 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 non-operating income and expense. Gains and losses on terminated swaps are recognized over the remaining life of the underlying obligation as an adjustment to interest income or interest expense. Earnings Per Share 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. Note 2: Restructuring Charges In June 1996, the Company's board of directors approved plans to restructure portions of the vision care and eyewear operations and certain corporate administration functions. Accordingly, a pre-tax restructuring charge of $15.1 was recorded, the major components of which are summarized in the table following: Bausch & Lomb Incorporated and Consolidated Subsidiaries page 39 -------
Corporate Eyewear Vision Care Administration Total -------------------------------------------------------------------------------- Employee separations $2.5 $4.5 $1.5 $8.5 Asset writedowns 0.6 1.1 -- 1.7 Other 1.9 3.0 -- 4.9 ----------------------------------------------------- $5.0 $8.6 $1.5 $15.1 =====================================================
A portion of the vision care charge provided for a streamlining of U.S. operations. The remainder of the charge, along with the eyewear charge, provided for the reorganization of European and Asia-Pacific operations, primarily warehousing and logistics. The corporate administration charge provided for the streamlining of certain functions. In December 1995, the Company's board of directors approved plans to restructure portions of the eyewear, healthcare and vision care operations, as well as certain corporate administration functions and a pre-tax restructuring charge of $26.7 was recorded. The major components of the restructuring charge are set forth in the table below:
Corporate Eyewear Healthcare Vision Care Administration Total -------------------------------------------------------------------------------- Employee separations $11.8 $2.1 $ -- $ 2.0 $15.9 Asset writedowns 3.4 2.2 3.1 1.0 9.7 Other 0.6 0.5 -- -- 1.1 --------------------------------------------------------- $15.8 $4.8 $3.1 $ 3.0 $26.7 =========================================================
The eyewear charge provided for the closure of certain U.S. sunglass manufacturing operations and consolidation of administrative functions in the U.S. commercial business. The healthcare charge provided for the closure of certain animal production facilities in the biomedical operations in North America and Europe, as well as the consolidation of certain administrative functions. The vision care charge provided for costs associated with losses on disposition of assets related to elective strategy changes for the traditional contact lens business. The corporate administration charge provided for the streamlining of corporate operations. Asset writedowns primarily related to facilities being closed and losses on disposition of equipment. Other charges included losses under lease and other commitments. The following table sets forth the activity in the restructuring reserves through December 28, 1996:
Corporate Eyewear Healthcare Vision Care Administration Total -------------------------------------------------------------------------------------------------- Restructuring provisions: 1995 $15.8 $4.8 $3.1 $3.0 $26.7 1996 5.0 -- 8.6 1.5 15.1 Less charges against 1995 reserve: Non-cash items 3.4 2.2 3.1 1.0 9.7 Cash payments 5.2 2.6 -- 1.0 8.8 Less charges against 1996 reserve: Non-cash items 0.9 -- 1.0 -- 1.9 Cash payments 0.8 -- 2.0 0.7 3.5 ------------------------------------------------------------ Balance at December 28, 1996 $10.5 $ -- $5.6 $1.8 $17.9 ============================================================
All actions contemplated at the time of establishing the reserves have been initiated and are expected to be fully completed by June 1997. Reserves remaining at December 28, 1996 primarily represent liabilities for continuing severance payments and are considered to be adequate. page 40 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Note 3: Geographic Region And Business Segment Information During 1996, the Company realigned its business segments to reflect its strategic emphasis on eye care products. The Company's operating results are now reported in four segments: vision care, eyewear, pharmaceuticals and healthcare. The vision care segment includes contact lenses, lens materials and lens care products. The eyewear segment includes sunglasses, optical thin film coating services and products and the sports optics business which was divested in 1995. The pharmaceuticals segment includes prescription pharmaceuticals and over-the-counter (OTC) medications. The healthcare segment includes purpose-bred laboratory animals, specific pathogen-free eggs, skin care products, hearing aids and the oral care and dental implant businesses which were divested in 1996. The majority of the Company's products are marketed globally through optical shops, distributors, healthcare practitioners or retailers. Ophthalmic pharmaceuticals and OTC medications are marketed primarily in the U.S. and Europe. 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 1996, 1995 and 1994:
Geographic Region Europe, Middle East Asia- Canada & U.S. & Africa Pacific Latin America Consolidated ------------------------------------------------------------------------------------------------------------- 1996 Sales to unaffiliated customers $ 976.7 $ 494.8 $341.0 $114.3 $1,926.8 Inter-area sales to affiliates 162.4 75.5 19.7 3.1 260.7 Operating earnings 77.1 74.3 35.8 3.6 190.8(1) Identifiable assets 1,204.2 1,090.5 238.3 70.4 2,603.4 ======================================================================== 1995 Sales to unaffiliated customers $ 997.6 $ 471.0 $345.3 $119.0 $1,932.9 Inter-area sales to affiliates 151.6 79.7 13.0 4.2 248.5 Operating earnings 75.8 93.2 43.6 (2.0) 210.6(2) Identifiable assets 1,152.6 1,078.4 244.1 75.0 2,550.1 ======================================================================== 1994 Sales to unaffiliated customers $1,045.3 $ 414.2 $303.7 $129.5 $1,892.7 Inter-area sales to affiliates 135.6 101.6 1.6 4.4 243.2 Operating earnings (8.5) 91.9 29.9 6.5 119.8(3) Identifiable assets 1,187.6 918.9 269.3 81.9 2,457.7 ========================================================================
(1) Includes restructuring charges of $15.1 as follows: U.S., $6.3; Europe, Middle East & Africa, $6.5; Asia-Pacific, $1.9 and Canada & Latin America, $0.4. (2) Includes restructuring charges of $26.7 as follows: U.S., $22.9; Europe, Middle East & Africa, $3.3 and Canada & Latin America, $0.5. (3) Includes goodwill impairment charge of $75.0 in the U.S. related to the oral care business divested in 1996. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 41 ------- The amounts in the table below have been restated to coincide with the new business segments. Individual product line results comprising each segment have not been restated, and the Company has applied consistent allocation methodologies to determine those results. Business Segment
Operating Identifiable Capital Net Sales Earnings Depreciation Assets Expenditures ----------------------------------------------------------------------------------------------------------------------- 1996 Vision care $ 869.1 $182.1 $38.2 $ 646.1 $ 61.9 Eyewear 525.1 (5.6) 23.4 461.0 28.6 Pharmaceuticals 189.0 28.6 8.4 200.5 14.2 Healthcare 343.6 34.8 16.9 417.6 21.5 Corporate administration -- (49.1) 5.7 878.2 4.1 ------------------------------------------------------------------------------ $1,926.8 $190.8(1) $92.6 $2,603.4 $130.3 ============================================================================== 1995 Vision care $ 813.7 $158.5 $34.2 $ 593.2 $ 38.7 Eyewear 581.4 43.7 25.7 410.1 19.9 Pharmaceuticals 181.5 38.5 8.5 196.1 12.7 Healthcare 356.3 30.8 17.9 430.1 14.4 Corporate administration -- (60.9) 2.9 920.6 9.8 ------------------------------------------------------------------------------ $1,932.9 $ 210.6(2) $89.2 $2,550.1 $ 95.5 ============================================================================== 1994 Vision care $ 749.5 $140.7 $31.3 $ 601.7 $ 45.3 Eyewear 649.9 72.6 23.0 471.8 20.4 Pharmaceuticals 142.3 24.7 7.4 186.0 5.3 Healthcare 351.0 (74.4)(3) 17.8 423.4 13.3 Corporate administration -- (43.8) 2.9 774.8 0.5 ------------------------------------------------------------------------------ $1,892.7 $119.8 $82.4 $2,457.7 $ 84.8 ==============================================================================
(1) Includes restructuring charges of $15.1 as follows: vision care, $8.6; eyewear, $5.0; corporate administration, $1.5. (2) Includes restructuring charges of $26.7 as follows: vision care, $3.1; eyewear, $15.8; healthcare, $4.8; corporate administration, $3.0. (3) Includes goodwill impairment charge of $75.0. Note 4: Supplemental Balance Sheet And Cash Flow Information Accounts Receivable The Company has entered into two agreements to sell undivided interests in designated pools of trade accounts receivable. A U.S. agreement for up to $75.0 which originally expired in July 1996 was extended to July 1997. A non-U.S. agreement for up to 3 billion Japanese yen expires in December 1997. At December 28, 1996 and December 30, 1995, approximately $86.8 and $94.5 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 $3.8 in 1996, $4.5 in 1995 and $3.7 in 1994. 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. page 42 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Inventories December 28, December 30, 1996 1995 --------------------------------------------------------------------- Raw materials and supplies $ 89.4 $ 76.8 Work in process 20.1 21.9 Finished products 238.3 214.9 --------------------- 347.8 313.6 Less allowance for valuation of certain U.S. inventories at LIFO 8.0 9.3 --------------------- $339.8 $304.3 ===================== Inventories valued using LIFO $ 74.9 $ 69.1 ===================== Property, Plant And Equipment December 28, December 30, 1996 1995 ---------------------------------------------------------------------- Land $ 22.1 $ 22.1 Leasehold improvements 33.1 33.7 Buildings 403.7 397.0 Machinery and equipment 689.7 630.0 --------------------- 1,148.6 1,082.8 Less accumulated depreciation 581.9 532.4 --------------------- $ 566.7 $ 550.4 ===================== Cash Flow Information Payments of interest in 1996, 1995 and 1994 were $48.6, $44.6 and $39.8, respectively. Payments of income taxes during those years were $89.9, $96.7 and $69.8, respectively. Note 5: Other Investments In 1995, the Company invested 219 million Netherlands guilders (NLG) approximating $136.0 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 28, 1996, the average U.S. dollar rate of return was 5.38%, including the effects of foreign currency transactions which effectively hedge the currency risk and convert the NLG income to a U.S. dollar rate of return. The Company has the right to call for redemption of the shares held each quarter at net asset value. In the event this right is not exercised, the triple-A rated financial institution has the right to put the shares it owns to the Company in March and June 2003. In 1994, the Company invested $425.0 in securities issued by a subsidiary of a double-A rated financial institution. The securities rank senior to all other classes of the issuer's equity and rank junior to the secured and unsecured liabilities of the issuer, including subordinated debt obligations, and are neither payable upon demand nor have a fixed maturity. The securities pay quarterly cumulative dividends at a variable LIBOR-based rate. At December 28, 1996, this rate was 5.00%. The issuer holds a call option on the Bausch & Lomb Incorporated and Consolidated Subsidiaries page 43 ------- securities, exercisable upon 180 days notice. The securities will become freely transferable in approximately seven 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. As of December 28, 1996, an $11.8 net unrealized foreign currency loss related to this investment has been recorded in equity. Management believes that overall the investments are fully recoverable, based on the high quality and stability of the institutions, however, the investments are subject to equity risks. Note 6: 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:
1996 1995 1994 ------------------------------------------------------------------------------------------ Earnings before income taxes and minority interest: U.S $ 42.0 $ 64.4 $ (3.6) Non-U.S 126.9 147.4 119.9 --------------------------------- $168.9 $211.8 $116.3 ================================= Provision for income taxes: Federal Current $ (3.2) $ 57.1 $ (7.3) Deferred 13.9 (27.5) 28.3 State Current 4.4 12.3 (2.1) Deferred 2.0 (6.2) 5.6 Foreign Current 48.4 47.1 27.5 Deferred (1.8) (4.7) 9.1 --------------------------------- $ 63.7 $ 78.1 $ 61.1 =================================
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 1997 and 2011, is contingent on future taxable earnings. Valuation allowances have been recorded for these and other asset items which may not be realized. page 44 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - -------
December 28, 1996 December 30, 1995 - - ------------------------------------------------------------------------------------------------------------ Assets Liabilities Assets Liabilitie -------------------------------------------- Current: Employee benefits and compensation $ 17.6 $ -- $ 19.8 $ -- Inventories 28.0 -- 34.3 -- Tax loss and credit carryforwards 1.2 -- 1.5 -- Restructuring accruals 6.6 -- 11.4 -- Sales and allowance accruals 19.6 -- 20.1 -- Legal/litigation accruals 8.6 -- 8.4 -- Unrealized foreign exchange transactions 1.8 8.6 1.4 -- State and local income tax 0.4 7.4 1.0 7.0 Other accruals 9.4 -- 8.0 -- ------------------------------------------- Total current 93.2 16.0 105.9 7.0 ------------------------------------------- Non-current: Depreciation and amortization 0.6 56.7 0.2 62.0 Employee benefits 40.0 0.6 42.5 -- Unrealized foreign exchange transactions -- 8.4 4.0 -- Other accruals -- 4.2 -- 4.4 Tax loss and credit carryforwards 29.8 -- 31.8 -- State and local income tax -- 1.8 -- 1.9 Valuation allowance (27.3) -- (26.5) -- ------------------------------------------- Total non-current 43.1 71.7 52.0 68.3 ------------------------------------------- Deferred income taxes $136.3 $87.7 $157.9 $75.3 ===========================================
Reconciliations of the statutory U.S. federal income tax rate to effective tax rates were as follows:
1996 1995 1994 -------------------------------------------------------------------------------------------------- Statutory U.S. tax rate 35.0% 35.0% 35.0% Goodwill impairment charge with no income tax benefit -- -- 22.6 Goodwill amortization 1.0 1.0 2.2 Rate differential for Subpart F income 5.3 5.3 2.4 State income taxes, net of federal tax benefit 2.5 1.9 2.0 Difference between non-U.S. and U.S. tax rates (2.4) (4.4) (2.9) Effect of enacted changes in non-U.S. tax rates -- -- (1.7) Foreign Sales Corporation tax benefit (1.8) (1.2) (2.2) Other (1.9) (0.7) (4.8) ---------------------------------------- Effective tax rate 37.7% 36.9% 52.6% ========================================
At December 28, 1996, earnings considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $749.0. Deferred income taxes have not been provided on these earnings, as the Company does not plan to initiate any action that would require the payment of income taxes. It is not practicable to estimate the amount of additional tax that might be payable on these undistributed foreign earnings. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 45 ------- Note 7: Debt Short-term debt at December 28, 1996 and December 30, 1995 consisted of $366.3 and $262.0 in U.S. commercial paper and promissory notes issued to banks and $27.8 and $22.5 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 $290.0, however, no debt was outstanding under these agreements at December 28, 1996. A commitment fee at a rate of 0.05% was charged on the unused portion in 1995 and 1996. The interest rate under the agreements is at the prime rate, or, at the Company's option, a mutually acceptable market rate. The Company also currently maintains unused U.S. bank lines of credit amounting to approximately $32.0. Compensating balance arrangements are not material. The Company has entered into two seven-year interest rate swap agreements, each in notional amounts of $100.0, which convert $200.0 of U.S. commercial paper into fixed-rate obligations with an effective interest rate of 6.48%. The swaps will terminate on January 1, 2002. Average short-term interest rates, which include the effect of the interest rate swap agreements, were 5.8% and 6.3% at year end 1996 and 1995, respectively. The maximum amount of short-term debt at the end of any month was $472.0 in 1996 and $297.2 in 1995. Average month-end borrowings were $405.8 in 1996 and $252.4 in 1995. The components of long-term debt were:
December 28, December 30, 1996 1995 ----------------------------------------------------------------------------------------------------- Fixed-rate notes payable: Notes due in 1996 $ -- $ 94.8 Notes due in 1997 85.0 85.0 Notes due in 1999 26.3 -- Notes due in 2001 or 2026 100.0 -- Notes due in 2003 85.0 85.0 Other 12.2 9.2 Industrial Development Bonds due in 2015 8.5 8.5 Other 7.3 7.5 ------------------------ 324.3 290.0 Less current portion 88.0 99.0 ------------------------ $236.3 $191.0 ========================
During 1996, $100.0 notes were issued under the Company's $300.0 medium-term note program at a fixed rate of 6.56%. The holders, at their option, may put these notes back to the Company in 2001; otherwise the notes mature in 2026. The notes maturing in 1999 relate to borrowings of 3 billion Japanese yen at interest rates ranging from 2.21% to 2.28%. Interest rate swap agreements on the $85.0 notes due in each of the years 1997 and 2003 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 28, 1996 this rate was 5.7%. The interest rate on the Industrial Development Bonds, which was 4.7% at December 28, 1996, varies based on the prime rate and prevailing market conditions. Interest rate swap agreements on long-term debt issues resulted in a reduction in the long-term effective interest rate from 6.0% to 5.5% in 1996 and from 6.0% to 5.4% in 1995. Long-term borrowing maturities during the next five years are $88.0 in 1997, $1.7 in 1998, $27.9 in 1999, $1.6 in 2000 and $108.3 in 2001. page 46 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Note 8: Operating Leases The Company leases land, buildings, machinery and equipment under noncancelable operating leases. Total annual rental expense for 1996, 1995 and 1994 amounted to $26.8, $28.0 and $27.1, respectively. Minimum future rental commitments having noncancelable lease terms in excess of one year aggregate $136.9 as of December 1996 and are payable as follows: 1997, $21.1; 1998, $16.4; 1999, $11.7; 2000, $9.0; 2001, $8.6 and beyond, $70.1. During 1995, the Company entered into a seven-year variable rate operating lease on an office facility in Rochester, New York, with an associated residual value guarantee in an amount not to exceed $54.6. At December 1996, estimated annual rent payments under the agreement approximated $4.9. Note 9: Employee Benefits The Company sponsors several retirement plans which, in the aggregate, cover substantially all U.S. employees and employees in certain other countries. In general, retirement benefits are based on years of service and the employee's compensation near retirement. Certain non-U.S. pension arrangements also provide termination indemnity payments. Contributions to the Company's major U.S. plan meet ERISA minimum funding requirements. The plan's investments consist primarily of equity securities, corporate bonds, U.S. government issues and cash and cash equivalents. The Company also sponsors defined contribution plans and participates in government-sponsored programs in certain non-U.S. locations. In addition to retirement plans, the Company sponsors a participatory defined benefit postretirement plan providing medical and life insurance benefits to a majority of its U.S. employees. The plan provides benefits to retirees who have attained age 55 with ten years of service, their spouses and certain employees on disability. The Company has established a Voluntary Employee Benefit Association trust to provide for payment of these benefits. Annual contributions of $5.0 were made to the trust in 1996, 1995 and 1994. The trust's investments consist primarily of participating insurance contracts. The Company intends to continue a program of prefunding for these benefits on an annual basis, but the amount of any future 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. In addition, the Company sponsors supplemental defined benefits retirement plans for certain key employees. These plans are unfunded. The pension liability associated with these plans has generally been determined using the same actuarial methods and assumptions as those used for the Company's qualified plans. The annual cost of these plans has been included in the net periodic pension cost shown below and totaled $1.2 in 1996, $0.9 in 1995 and $0.9 in 1994. The projected benefit obligation relating to these unfunded plans at year end was $7.7 in 1996 and $6.1 in 1995. 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 was attributable to a curtailment charge incurred as a result of the Company's restructuring efforts, and a discretionary increase in benefits, offset by a reduction in participants and favorable plan experience. The decrease in postretirement benefit expense was attributable to changes in assumptions for discount and medical care cost trend rates, population experience and favorable medical claims experience, as well as a curtailment credit. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 47 ------- The components of net periodic pension cost and U.S. net periodic postretirement cost are presented below:
1996 1995 1994 ------------------------------------------------------------------------------ U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Plans Plans Plans Plans Plans Plans ------------------------------------------------------------------------------------------------------------------------- Retirement Plans Service cost -- benefits earned during the period $ 6.5 $ 2.1 $ 5.4 $ 2.1 $ 6.8 $ 2.0 Interest cost on projected benefit obligation 11.8 1.9 10.9 1.8 10.3 1.6 Actual return on plan assets (20.6) (2.7) (26.3) (1.9) 0.7 0.7 Charges due to curtailment 1.0 -- -- -- -- -- Net amortization and deferral 10.0 1.4 17.7 1.0 (9.7) (1.7) ------------------------------------------------------------------------------ Net periodic pension cost $ 8.7 $ 2.7 $ 7.7 $ 3.0 $ 8.1 $ 2.6 ============================================================================== Other Postretirement Benefits Service cost -- benefits earned during the period $ 1.9 $ 1.9 $ 2.6 Interest cost on accumulated benefit obligation 6.0 6.0 6.5 Actual return on plan assets (1.9) (2.9) 1.1 Credits due to curtailment (0.9) -- -- Net amortization and deferral (2.0) (0.3) (2.5) ------------------------------------------------------------------------------ Net periodic postretirement benefit cost $ 3.1 $ 4.7 $ 7.7 ==============================================================================
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:
1996 1995 1994 ------------------------------------------------------------------------------ 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% 7.75% 5.5-8.0% 8.25% 5.5-8.0% Rate of increase in compensation levels 5.0% 3.7-6.5% 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% 2.5-9.0% 9.0-10.0% 5.5-9.0% 9.0-10.0% 5.5-9.0% Medical care cost trend rate 10.0% 11.0% 12.0% ==============================================================================
In December 1995, the Company elected to revise its assumptions for all U.S. plans in recognition of lower 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, and 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 $1.0 or 13% in 1996. page 48 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- The following tables set forth the funded status and amounts recognized in the Company's consolidated balance sheet: Retirement Plans
December 28, 1996 December 30, 1995 ---------------------------------------------------------- Over Under Over Under Funded Funded Funded Funded ------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $22.2 $144.8 $17.6 $136.6 Non-vested benefits 0.6 3.5 0.7 3.9 ---------------------------------------------------------- Accumulated benefit obligation 22.8 148.3 18.3 140.5 Effect of projected future salary increases 13.2 12.4 9.5 15.7 ---------------------------------------------------------- Projected benefit obligation 36.0 160.7 27.8 156.2 Plan assets at fair value 43.1 129.5 32.7 119.4 ---------------------------------------------------------- Projected benefit obligation (less than) in excess of plan assets (7.1) 31.2 (4.9) 36.8 Unrecognized net gain (loss) from past experience different from that assumed 10.4 (1.4) 3.2 (6.4) Unrecognized prior service costs (0.2) (15.0) -- (13.4) Unrecognized net transition obligation (1.7) (3.4) -- (6.4) Additional liability -- 7.4 -- 11.3 ---------------------------------------------------------- Accrued pension liability $ 1.4 $ 18.8 $(1.7) $ 21.9 ========================================================== Other Postretirement Benefits December 28, December 30, 1996 1995 -------------------------------------------------------------------------------------------------------------------------- Actuarial present value of postretirement benefit obligations: Retirees $54.2 $54.3 Active, eligible participants 9.0 6.8 Other active participants 18.2 21.5 ------------------- Accumulated benefit obligation 81.4 82.6 Plan assets at fair value 23.3 16.5 ------------------- Accumulated benefit obligation in excess of plan assets 58.1 66.1 Unrecognized prior service cost 1.8 2.0 Unrecognized net gain 33.1 31.8 ------------------- Accrued postretirement benefit liability $93.0 $99.9 ===================
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 28, 1996 by approximately $8.5 or 10%. This reflects the significant effect this assumption has on the calculation of the obligation. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 49 ------- Note 10: Minority Interest Four wholly-owned subsidiaries of the Company have contributed operating and financial assets with an estimated market value of $1,006.0 to a limited partnership, in exchange for an aggregate 72% general and limited partnership interest. An outside investor contributed $400.0 in cash to the partnership in exchange for a 28% limited partnership interest. A wholly-owned subsidiary of the Company manages the activities of 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, those used for the manufacture and sale of rigid gas permeable contact lens materials and lens care solutions, cash and cash equivalents, a long-term note guaranteed by the Company and certain floating-rate demand notes due from certain of the Company's subsidiaries. For financial reporting purposes, the assets, liabilities and earnings of the partnership entities have continued to be included in the Company's consolidated financial statements. The outside investor's limited partnership interest in the partnership has been recorded as minority interest. Note 11: Shareholders' Equity At December 28, 1996, 10,000 shares of 4% Cumulative Preferred stock, 25 million shares of Class A Preferred stock, 15 million shares of Class B stock and 200 million shares of Common stock were authorized. The Company issues treasury shares to fulfill its obligations under its stock option plans. The difference between the cost of treasury shares issued and the option price is charged to capital in excess of par value. page 50 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Changes in shareholders equity accounts are sumarized below:
Common And Class B Treasury Other Shareholders' Equity ------------------------------------------------------------------------------------ Net Capital In Unrealized Cumulative Shares Excess Of Shares Unearned Losses On Translation (000s) Amount Par Value (000s) Amount Compensation Investments Adjustment - - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 25, 1993 61,135 $ 24.2 $ 88.1 (2,016) $ (83.7) $ -- $ -- $ 8.9 Shares issued under stock option plans and restricted stock awards 136 -- 5.8 298 10.0 (3.2) -- -- Repurchase of Common and Class B stock -- -- -- (561) (20.6) -- -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- 38.7 -------------------------------------------------------------------------------------- Balance at December 31, 1994 61,271 24.2 93.9 (2,279) (94.3) (3.2) -- 47.6 Shares issued under stock option plans and restricted stock awards 196 -- 13.9 298 9.7 (10.3) -- -- Repurchase of Common and Class B stock -- -- -- (2,545) (94.1) -- -- -- Amortization of unearned compensation -- -- -- -- -- 4.3 -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- 37.5 -------------------------------------------------------------------------------------- Balance at December 30, 1995 61,467 24.2 107.8 (4,526) (178.7) (9.2) -- 85.1 Net shares (canceled) issued under stock option plans and restricted stock awards (118) -- (11.7) 428 15.5 (1.6) -- -- Repurchase of Common and Class B stock -- -- -- (1,847) (67.3) -- -- -- Foreign currency translation adjustment -- -- -- -- -- -- -- 4.9 Unrealized holding loss on other investments -- -- -- -- -- -- (11.8) -- -------------------------------------------------------------------------------------- Balance at December 28, 1996 61,349 $ 24.2 $ 96.1 (5,945) $(230.5) $ (10.8) $ (11.8) $90.0 ======================================================================================
From 1987 to 1995, the board of directors authorized the repurchase, at management's discretion, up to a total of 8 million of the Company's issued shares of Common stock. Through 1996, the total number of shares authorized for repurchase under this program has been purchased. In December 1996, the board of directors authorized the repurchase of an additional 250,000 shares, none of which were purchased prior to year end. Unearned compensation relates to awards of restricted stock and is recorded at the date of award based on the market value of the shares and is amortized to expense as stock performance goals are met over the applicable vesting period. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 51 ------- 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 one-half cent per right at any time prior to the acquisition by a person or group of 20% of the outstanding shares of the Company's Common and Class B stock. In the event a person or group has acquired 20%, but not more than 50%, of such shares, the Company may redeem the rights of each holder, other than the acquirer, in exchange for either one share of Common stock or one two-hundredth of a share of Series A Preferred stock. Note 12: Fair Value Of Financial Instruments The carrying amount of cash, cash equivalents and short-term investments and notes payable approximates fair value because their maturity is generally less than one year in duration. The Company places its cash, cash equivalents and short-term investments with financial institutions and limits the amount of credit exposure with any one financial institution to between $25.0 and $50.0, based on the credit rating and asset size of the institution. The Company's remaining financial instruments consisted of the following:
December 28, 1996 December 30, 1995 ----------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value -------------------------------------------------------------------------------------------------------------------------- Nonderivatives: Other investments $ 560.3 $560.3 $ 561.2 $ 561.2 Long-term debt, including current portion $(324.3) $(320.9) $(289.9) $(298.2) =============================================== Derivatives held for purposes other than trading: Foreign exchange instruments: Other current assets $ 28.3 $ 7.9 Accrued liabilities (10.4) (11.8) ----------------------------------------------- Net foreign exchange instruments $ 17.9 $ 26.9 $ (3.9) $ (0.4) =============================================== Interest rate instruments: Other current assets $ 14.9 $ 10.2 Accrued liabilities (12.9) (10.6) ----------------------------------------------- Net interest rate instruments $ 2.0 $ 5.4 $ (0.4) $ (13.6) ===============================================
Fair value of other investments was determined based on contract terms and an evaluation of expected cash flows and investment risk. Fair value for long-term debt was estimated using either quoted market prices for the same or similar issues or the current rates offered to the Company for debt with similar maturities. The fair value for foreign exchange and interest rate instruments was determined based upon a model which estimates the fair value of these items using market rates at year end or was based upon quoted market prices for similar instruments with similar maturities. page 52 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Note 13: Derivative Financial Instruments Foreign Exchange Risk Management The Company enters into foreign exchange forward and purchased option contracts primarily to hedge foreign currency transactions and equity investments in non-U.S. subsidiaries. To a much lesser extent, the Company hedges firm commitments, primarily for purchases of inventory. Gains and losses on the contracts offset exposures being hedged. Deferred gains and losses totaled less than $0.5 at December 28, 1996 and December 30, 1995 and are expected to be recognized within one year. Until recognized, the amounts have been recorded as other current assets or accrued liabilities. At December 28, 1996 the Company hedged exposures aggregating $1,434.1 by entering into forward exchange and option contracts requiring purchases of $818.0 U.S. dollar equivalent currencies and sales of $616.1 U.S. dollar equivalent currencies. At December 30, 1995 the aggregate exposures hedged were $1,239.0 with hedging accomplished through buying and selling $989.0 and $250.0, respectively, of U.S. dollar equivalent currencies. For both 1996 and 1995, the foreign currencies purchased were primarily Irish pounds, Singapore dollars and Swiss francs; the currencies sold were, for 1996, primarily German marks, Netherlands guilders and Singapore dollars, and for 1995, Singapore dollars and German marks. The percentage of hedging activity related to assets and liabilities was 57% and 63% at year end 1996 and 1995, respectively. Hedges of equity investments in non-U.S. subsidiaries comprised a majority of the remaining hedging activity. The forward exchange contracts have varying maturities with none exceeding two years. Net settlements are generally made at contract maturity based on rates agreed to at contract inception. The Company selectively hedges foreign currency transaction and commitment exposures arising in countries with hyperinflationary economies, restrictive exchange controls or underdeveloped currency markets because hedging all such exposures is not cost effective. The estimated notional amount of such exposures that remained unhedged at December 28, 1996 was $5.6. Amortization of premiums or discounts on foreign exchange instruments, primarily Irish pound contracts, resulted in income of approximately $3.6 and $0.7 for 1996 and 1995, respectively. The increase in 1996 reflects the impact of new hedges of investments in certain subsidiaries offset by lower premiums on Irish pound contracts caused by the narrowing differential between U.S. and Irish interest rates. 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 1996 by approximately $2.8. Carrying value as presented in the table in Note 12 -- Fair Value Of Financial Instruments does not reflect unrecognized net premium income totaling $5.4 in 1996 and $0.8 in 1995. Including these amounts, outstanding foreign exchange contracts were in a net unrealized positive cash flow position of approximately $23.3 at December 28, 1996 and a net unrealized negative cash flow position of $3.2 at December 30, 1995. The Company estimates that for 1996 this net cash flow position, which is highly sensitive to movements in exchange rates, would change by approximately $40.0 for each ten-cent move in the U.S. dollar to Irish pound exchange rate. The potential for periodic cash outflows from maturing or terminated foreign exchange and option contracts are not of sufficient magnitude to adversely impact the Company's liquidity requirements. Interest Rate Risk Management The Company uses interest rate swap agreements to balance its floating-rate assets and floating-rate liabilities and commitments. To the extent this strategy is successful the Company effectively insulates itself from interest rate risk since the net effect on financial results would be negligible. The following is a summary of the Company's interest rate swap agreements by major type: Bausch & Lomb Incorporated and Consolidated Subsidiaries page 53 -------
December 28, December 30, Maturities 1996 1995 Through --------------------------------------------------------------------------------------------------------------------------- Receive fixed swaps--notional amount $550.0 $550.0 2003 Average receive rate 5.60-6.58% 5.60-6.58% Average pay rate 5.63-5.68% 5.69-5.84% Pay fixed swaps--notional amount $265.0 $265.0 2002 Average pay rate 6.48-7.29% 6.48-7.25% Average receive rate 5.59-5.68% 5.63-5.84% Floating/floating swap--notional amount $132.0 $126.3 2000 Pay rate (NLG) 2.65% 3.45% Receive rate (USD) 5.34% 5.47% ===================================================
The variable-rate portions of the swaps in the above table are based on either three-month LIBOR or the one-month U.S. composite commercial paper rate at December 28, 1996 and December 30, 1995. Changes in these rates would change the above disclosures and future cash flows. At December 28, 1996 and December 30, 1995 the Company had outstanding an interest rate cap with a notional amount of NLG 15.5 million which protects the Company from exposures to rising NLG interest rates. Credit Risk The Company is exposed to credit risk to the extent of non-performance by counterparties to the foreign currency contracts and interest rate swaps discussed above. The credit ratings of the counterparties, which consist of a diversified group of major financial institutions, are regularly monitored and thus credit loss arising from counterparty non-performance is not anticipated. Note 14: Stock Compensation Plans The Company sponsors several stock-based compensation plans, all of which are accounted for under the provisions of APB Opinion No. 25. Accordingly, no compensation cost has been recognized for the Company's fixed stock option plans or its employee stock purchase plan. The compensation expense relating to stock awards in 1996, 1995 and 1994 was $1.3, $5.6 and $1.4, respectively. Had compensation expense for all types of the Company's stock-based compensation been determined consistent with SFAS No. 123, the Company's net income would have been $78.9 and $110.5 in 1996 and 1995, respectively, compared with the reported earnings of $83.1 and $112.0. Earnings per share would have been $1.40 and $1.91 in 1996 and 1995, as compared to reported earnings per share of $1.47 and $1.94. Stock Options The Company issues stock options which vest ratably over three years and expire ten years from the grant date. Vesting is contingent upon continued employment with the Company. For purposes of this disclosure, the fair value of each fixed option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: expected option terms of five years for both periods; expected stock volatility of approximately 25.0% for both periods; expected dividend yields of 2.42% and 2.17% and risk-free interest rates of 6.11% and 5.39%. The weighted average fair value of options granted was $9.34 in 1996 and $10.45 in 1995. page 54 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- A summary of the status of the Company's fixed stock option plans at year end 1996, 1995 and 1994 is presented below:
1996 1995 1994 --------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Number Of Exercise Price Number Of Exercise Price Number Of Exercise Price Shares Per Share Shares Per Share Shares Per Share ------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 4,425,599 $40.84 3,891,276 $40.50 3,905,553 $40.87 Granted 1,253,323 35.86 1,181,585 40.98 432,485 34.55 Exercised (204,418) 27.40 (207,184) 26.26 (197,882) 26.75 Forfeited (444,928) 43.60 (440,078) 44.92 (248,880) 46.13 --------------------------------------------------------------------------------------------- Outstanding at year end 5,029,576 $39.90 4,425,599 $40.84 3,891,276 $40.50 ============================================================================================= Options exercisable at year end 3,028,610 2,661,110 2,529,108 =============================================================================================
The following represents additional information about fixed stock options outstanding at December 28, 1996:
Options Outstanding Options Exercisable ---------------------------------------------------------------------------------------------------------------------- Weighted Average Range Of Number Remaining Weighted Average Number Weighted Average Exercise Prices Outstanding At Contractual Life Exercise Price Exercisable At Exercise Price Per Share December 28, 1996 Years Per Share December 28, 1996 Per Share ---------------------------------------------------------------------------------------------------------------------- $16 to 25 208,787 1.2 $21.72 208,787 $21.72 26 to 35 1,840,228 7.6 34.60 690,955 33.48 36 to 45 1,601,653 7.2 41.31 749,960 42.07 46 to 55 1,378,908 6.2 48.10 1,378,908 48.10 ---------------------------------------------------------------------------------------------------------------------- $16 to 55 5,029,576 6.8 $39.90 3,028,610 $41.15 ----------------------------------------------------------------------------------------------------------------------
Stock Awards The Company issues restricted stock awards to directors, officers and other key personnel. These awards have vesting periods up to three years with vesting criteria including attainment of certain stock price performance goals, satisfactory job performance and continued employment until applicable vesting dates. Compensation expense is recorded based on the applicable vesting criteria and, for those awards with performance goals, as such goals are met. In 1996, 1995 and 1994, 139,052, 401,522 and 87,205 such awards were granted at weighted average market values of $38.43, $45.02 and $37.35 per share, respectively. Bausch & Lomb Incorporated and Consolidated Subsidiaries page 55 ------- Note 15: 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 agreed to consolidate the actions and plaintiffs have filed a third-amended consolidated complaint. 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 all shareholders who purchased shares between June 4, 1994 and January 25, 1995. In October 1996, the court denied in substantial part the Company's and the individual officers' motions to dismiss. The Company and individual officers have filed motions for reconsideration of the October 1996 order or, in the alternative, certification of the order pursuant to 28 U.S.C. ss. 1292 (b). Discovery has not yet commenced in this consolidated action. A motion by plaintiffs to certify the alleged class is pending. 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 accounting for sunglass sales in its Asia-Pacific Division in the period from late 1992 through early 1994. 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. An adverse outcome could result in the filing of civil proceedings by the SEC against the Company seeking injunctive relief, or administrative proceedings seeking a cease and desist order. 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. On November 26, 1996, the court gave final approval to a settlement, under which consumers who purchased Medalist lenses between January 1, 1991 through December 31, 1995, Optima FW lenses between November 1, 1990 through December 31, 1995 and Criterion Ultra FW lenses between November 1, 1990 through April 30, 1996 were eligible to participate. The Company recorded a charge against third quarter earnings which, in addition to existing litigation reserves, is deemed adequate to satisfy the costs of the settlement. Additionally, on May 2, 1996 and October 3, 1996, the Company was served with statements of claim filed in Ontario and British Columbia, Canada, respectively, naming the Company and Bausch & Lomb Canada. The plaintiffs seek to represent a class of Canadian consumers alleging similar claims. Another action filed in California state court in October 1994 raising substantially similar claims has been resolved. A working group of state attorneys general, representing the interests of eighteen states, also requested documents regarding the Company's pricing, labeling and advertising of these lenses. 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 products. 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 dismissed their actions in other states. Another action, which was filed by a separate group of plaintiffs' attorneys in state court in California, was voluntarily dismissed. Management vigorously defends the marketing of these products. page 56 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- 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 $1.0 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 and Tennessee state courts. The complaints make similar allegations and seek similar relief on behalf of consumers outside the State of Florida. In December 1996, the New York State Attorney General, on behalf of itself and approximately twenty-one other states, filed a substantially similar action in the United States District Court for the Eastern District of New York and have sought consolidation with the pending action. The Company defends its policy as a lawfully adopted means of insuring effective distribution of its products and safeguarding consumers' health. 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 35 through 57 of this 1996 annual report of Bausch & Lomb Incorporated present fairly, in all material respects, the financial position of Bausch & Lomb Incorporated and its subsidiaries at December 28, 1996 and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, 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 24, 1997 Bausch & Lomb Incorporated and Consolidated Subsidiaries page 57 ------- Selected Financial Data ----------------------------------------------------------------------
Dollar Amounts In Millions-- Except Per Share Data 1996 1995 1994 1993 1992 1991 - - ---------------------------------------------------------------------------------------------------------------------------------- Results For The Year Net sales $1,926.8 $1,932.9 $1,892.7 $1,830.1 $1,709.1 $1,520.1 Net earnings 83.1 112.0 31.1 138.9 171.4 27.6 Net earnings from continuing operations before cumulative effect of change in accounting principle and non-recurring charges* 91.7 108.6 106.1 175.4 171.4 149.2 Net earnings per share 1.47 1.94 0.52 2.31 2.84 0.46 Earnings per share before cumulative effect of change in accounting principle and non-recurring charges* 1.62 1.88 1.78 2.92 2.84 2.47 Dividends 1.04 1.01 0.955 0.88 0.80 0.72 ============================================================================ Year-End Position Working capital $ 18.5 $ 70.9 $ 277.4 $ 669.6 $ 514.9 $ 405.3 Total assets 2,603.4 2,550.1 2,457.7 2,493.0 1,873.7 1,738.5 Short-term debt 482.1 383.5 300.6 244.6 208.9 256.1 Long-term debt 236.3 191.0 289.5 321.0 277.7 195.7 Shareholders' equity 881.9 929.3 914.4 909.2 898.2 819.3 ============================================================================ Other Ratios And Statistics Return on sales 4.3% 5.8% 1.6% 7.6% 10.0% 1.8% Return on average shareholders' equity 9.2% 11.9% 3.2% 15.5% 20.3% 3.5% Return on average total assets 3.1% 4.5% 1.2% 6.8% 9.5% 1.6% Average income tax rate 37.7% 36.9% 52.6% 33.5% 32.4% 39.7% Current ratio 1.0 1.1 1.4 1.9 1.9 1.7 Total debt to shareholders' equity 81.5% 61.8% 64.5% 62.2% 54.2% 55.1% Total debt to capital 44.9% 38.2% 39.2% 38.3% 35.1% 35.5% Capital expenditures $ 130.3 $ 95.5 $ 84.8 $ 107.2 $ 119.3 $ 88.6 ==================================================================================================================================
* The cumulative effect of change in accounting principle is the 1991 adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ($58.3 after taxes, $0.96 per share). Non-recurring charges include restructuring charges, gains and losses on divestitures of businesses and goodwill impairment charges. page 58 Bausch & Lomb Incorporated and Consolidated Subsidiaries - - ------- Directors And Officers ---------------------------------------------------------------------- Directors Franklin E. Agnew(1)(3) Business Consultant Pittsburgh, Pennsylvania Director since 1982 William Balderston III(1)(4) Retired Executive Vice President The Chase Manhattan Bank Rochester, New York Director since 1989 William M. Carpenter(1) President and Chief Executive Officer Bausch & Lomb Director since 1996 Domenico DeSole President and Chief Executive Officer Gucci Group N.V. Florence, Italy Director since 1996 Jonathan S. Linen Vice Chairman American Express Company New York, New York Director since 1996 Ruth R. McMullin(3) Business Consultant Boston, Massachusetts 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 William H. Waltrip(1) Chairman Bausch & Lomb Director since 1985 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 1 year of service with the Company Named to current position: 12/95 William M. Carpenter President and Chief Executive Officer 2 years of service with the Company Named to current position: 1/97 Carl E. Sassano Executive Vice President and President -- Vision Care 24 years of service with the Company Named to current position: 12/96 Senior Vice Presidents Daryl M. Dickson Human Resources less than 1 year of service with the Company Named to current position: 11/96 James C. Foster Charles River Laboratories, Inc. 13 years of service with the Company Named to current position: 12/94 Dwain L. Hahs International Operations 20 years of service with the Company Named to current position: 9/96 Stephen A. Hellrung Secretary and General Counsel 15 years of service with the Company Named to current position: 3/95 James E. Kanaley* North American Vision Care 19 years of service with the Company Named to current position: 6/96 Stephen C. McCluski Finance 9 years of service with the Company Named to current position: 1/95 Thomas M. Riedhammer, Ph.D. Worldwide Pharmaceutical, Surgical and Hearing Care Products 15 years of service with the Company Named to current position: 11/94 Vice Presidents Alan P. Dozier North American Vision Care 12 years of service with the Company Named to current position: 2/97 Michael T. Gillen U.S. Eyewear 3 years of service with the Company Named to current position: 7/96 James T. Horn Global Product Supply -- Eyewear 5 years of service with the Company Named to current position: 5/96 Barbara M. Kelley Public Affairs 14 years of service with the Company Named to current position: 4/93 Jurij Z. Kushner Controller 16 years of service with the Company Named to current position: 1/95 James F. Milton Japan 26 years of service with the Company Named to current position: 12/94 Stephen J. Osbaldeston North American Vision Care 11 years of service with the Company Named to current position: 7/96 W.J. Pontius Global Business Manager -- Eyewear 2 years of service with the Company Named to current position: 8/95 Alan H. Resnick Treasurer 24 years of service with the Company Named to current position: 5/86 Robert F. Thompson U.S. Lens Care 14 years of service with the Company Named to current position: 6/96 James J. Ward Audit Services 20 years of service with the Company Named to current position: 2/93 Assistant Secretary Jean F. Geisel 21 years of service with the Company Named to current position: 6/86 * Mr. Kanaley has announced his plans to retire in the first half of 1997. We gratefully acknowledge the significant contributions he made to Bausch & Lomb over his 19 years of service. page 59 ------- Divisions And Subsidiaries ---------------------------------------------------------------------- The Americas United States Arnette Optic Illusions, Inc. San Clemente, California(2) Bausch & Lomb Lamex, Inc. Miami, Florida(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) Dahlberg, Inc. Golden Valley, Minnesota(1) East Acres Biologicals Southbridge, Massachusetts(1) Eyewear Division Oakland, Maryland(1) Rochester, New York(1) San Antonio, Texas(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) Thin Film Technology Division Rochester, New York(1) Vision Care Division Sarasota, Florida(1) Rochester, New York(1) Greenville, South Carolina(1) Lynchburg, Virginia(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) Colombia Bausch & Lomb de Colombia S.A. Bogota(2) Mexico Operadora de Contactlogia, S.A. de C.V. Mexico City(1) Aves Libres de Patogenos Especiaficios SA Puebla(1) Puerto Rico Bausch & Lomb Puerto Rico, Inc. San Juan(2) Venezuela Bausch & Lomb Venezuela, C.A. Caracas(2) (1) Manufacturing and Production (2) Direct Marketing and Sales page 60 - - ------- Europe and Africa Austria Bausch & Lomb G.m.b.H. Vienna(2) Denmark Bausch & Lomb Danmark A/S Copenhagen(2) England 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) 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) 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) Killer Loop S.p.A. Pederobba(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) Republic of South Africa Bausch & Lomb South Africa Pty. Ltd. Randburg(2) 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 S.A. 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 North Asia 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. Tokyo(2) Charles River Japan, Inc. Atsugi(1) Hino(1) Tskuba(1) Yokohama(2) Malaysia South Asia Division Selangor(2) 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) Spafas Jinan Poultry Company, Ltd. Jinan(1) Republic of China Bausch & Lomb Taiwan Limited Taipei, Taiwan(1) Singapore Bausch & Lomb (Singapore) Private Limited(2) Bausch & Lomb Far East, P.T.E. South Korea Bausch & Lomb Korea, Ltd. Seoul(1) page 61 ------- Corporate Information ---------------------------------------------------------------------- Corporate Headquarters Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 (716) 338-6000 (800) 344-8815 Bausch & Lomb on the Internet Corporate, product, financial and shareholder information, including news releases and earnings announcements, are available at Bausch & Lomb's worldwide web site. www.bausch.com Bausch & Lomb News on Demand Bausch & Lomb's news releases are available toll-free by calling: (800) 758-5804 ext. 109877 Financial Literature Copies of Bausch & Lomb's annual report, proxy statement and Form 10-K are available to shareholders at no charge by calling: (716) 338-5757 or by writing to Staff Vice President, Investor Relations at the corporate headquarters address listed above. Investor Relations Security analysts and shareholders seeking information concerning Company operations, shareholder programs or dividend policy may contact: Staff Vice President, Investor Relations (716) 338-6025 Media Inquiries News media representatives and others seeking general information may contact: Director, Media Relations (716) 338-8064 Transfer Agent Shareholders seeking information regarding their individual accounts or dividend payments may contact our stock transfer agent: The First National Bank of Boston c/o Boston Equiserve P.O. Box 8040 Boston, MA 02266-8040 (800) 730-4001 Dividend Reinvestment Plan The plan is available to all shareholders of Bausch & Lomb stock. Under the plan, shareholders may elect to have their cash dividends automatically invested in additional shares of the Company's common stock. Shareholders may also elect to make cash contributions of up to $60,000 per year to purchase additional shares. For additional information contact: The First National Bank of Boston c/o Boston Equiserve P.O. Box 8040 Boston, MA 02266-8040 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: Arnette Award Bausch & Lomb Boston Boston Advance Boston 7 Boston ES Boston Simplicity Charles River Criterion Ultra FW Crolom Curel Duolube Gold Medalist Inertia Killer Loop Medalist Miracle-Ear Mirage Opcon-A Optima FW Orbs Ray-Ban ReNu Revo SeeQuence2 Sensitive Eyes Shapes Sidestreet SofLens66 Soft Sense Vivivit Multi Wayfarer Advil is a trademark of American Home Products Corporation Betagan is a trademark of Allergan Elite, Inc. EVA is a trademark of Stern Stewart & Co. Interplak is a trademark of Conair Corporation Liz Claiborne is a trademark of Liz Claiborne, Inc. U.S.A. Lotemax is a trademark of Pharmos Corporation Pert and Secret are trademarks of The Procter & Gamble Company Porsche Design is a trademark of Porsche Design GmbH Rogaine is a trademark of Pharmacia & Upjohn Co. Tobrex is a trademark of Alcon Laboratories, Inc. Vaseline Intensive Care is a trademark of Chesebrough-Pond's Inc. Design: Inc Design, New York City Executive Photography: Ted Kawalerski, New York City Product Photography: Ron Wu, Rochester, New York (C)1997 Bausch & Lomb Incorporated All Rights Reserved Worldwide [RECYCLE SYMBOL] 30% Post-Consumer Recycled Fiber page 62 - - ------- [TEXT WAS SUPERIMPOSED OVER A GRAPHIC IN THE PRINTED MATERIAL] Our Operating Principles ------------------------------------------------------- The consumer drives the business. New products are our life. Cost is bad, investment is good. Plan carefully, execute swiftly. There is always a better way. Focus on what's important. Leverage, leverage, leverage. We cannot succeed without each other. Our Commitments - - -------------------------------- The commitments are the promises Bausch & Lomb makes to everyone who has a stake in our business, including our consumers, our customers, our partners, our investors, our community and each other. To our investors we commit to providing long-term economic returns, recognizing their confidence in our ability to achieve sustainable growth. Bausch & Lomb One Bausch & Lomb Place Rochester, New York 14604 www.bausch.com Telephone: (716) 338-6000 (800) 344-8815 Bausch & Lomb Printed in U.S.A. M-1918-96 EX-21 12 EXHIBIT 21 Exhibit 21 Subsidiaries of Bausch & Lomb Incorporated as of December 31, 1996 Jurisdiction Under Name Which Organized Bausch & Lomb AG Switzerland Arnette Optic Illusions, Inc. California Bausch & Lomb (Australia) Pty. Limited Australia Bausch & Lomb (Bermuda) Finance Company, Ltd. Bermuda Bausch & Lomb (Bermuda) Limited Bermuda Bausch & Lomb B.V. Netherlands Bausch & Lomb Canada Inc. Canada Charles River Laboratories Inc. Delaware Bausch & Lomb China, Inc. Delaware 115 Clinton Avenue, Inc. New York Bausch & Lomb Colombia Colombia Dahlberg, Inc. Minnesota Bausch & Lomb Danmark A/S Denmark Bausch & Lomb Dist Ops S.A. Switzerland Bausch & Lomb Domestic Finance Corp. Delaware Bausch & Lomb Domestic Holdings Corp. Delaware Dr. Mann Pharma Germany Bausch & Lomb Espana, S.A. Spain Beijing Bausch & Lomb Eyecare Company, Ltd. China Bausch & Lomb Far East Pte. Singapore Bausch & Lomb Finance S.A. Switzerland OY Bausch & Lomb Finland AB Finland Bausch & Lomb Foreign Sales Corporation Barbados Bausch & Lomb Foundation, Inc. New York Bausch & Lomb France S.A. France Bausch & Lomb Fribourg SA Switzerland Bausch & Lomb GmbH Austria Guangzhou Bausch & Lomb Manufacturing Ltd. China Bausch & Lomb Holdings B.V. Netherlands Bausch & Lomb (Hong Kong) Limited Hong Kong Bausch & Lomb-Lord, Co. (Hong Kong) Limited Hong Kong Bausch & Lomb India Limited India BL Industria Otica Ltda. Brazil Bausch & Lomb International, Inc. New York Bausch & Lomb International Holdings Corp. Delaware Bausch & Lomb InVision Institute, Inc. Massachusetts Bausch & Lomb Ireland Ireland Bausch & Lomb IOM S.p.A. Italy B.L.J. Company Limited Japan Bausch & Lomb Korea, Ltd. Korea Bausch & Lomb Lamex, Inc. Delaware Madden & Layman, Ltd. England Bausch & Lomb (Malaysia) Sdn. Bhd. Malaysia Miracle-Ear, Inc. Minnesota Bausch & Lomb (New Zealand) Limited New Zealand Bausch & Lomb Norway A/S Norway Operadora de Contactologia, S.A. de C.V. Mexico Bausch & Lomb Opticare, Inc. New York Outlook Eyewear Company Delaware Bausch & Lomb Panama, Inc. Panama Bausch & Lomb Pharmaceuticals, Inc. Delaware Polymer Technology Corporation New York Bausch & Lomb Puerto Rico, Inc. Delaware Bausch & Lomb Realty Corporation New York Revo, Inc. Delaware Revo Europe Limited England RHC Holdings, Inc. Delaware Bausch & Lomb Services Corp. New York Sight Pharmaceuticals Incorporated Delaware Sight Savers, Inc. Delaware Bausch & Lomb (Singapore) Pte. Ltd. Singapore Bausch & Lomb South Africa (Pty.) Ltd. South Africa Bausch & Lomb South Asia, Inc. Delaware South Asia Management Company Sdn. Bhd. Malaysia Bausch & Lomb Svenska, AB Sweden Bausch & Lomb Taiwan Limited Taiwan Bausch & Lomb Turkey Turkey Bausch & Lomb U.K. Limited England Bausch & Lomb Venezuela, S.A. Venezuela Wilmington Management Corp. Delaware Wilmington Partners L.P. Massachusetts Windmill Investors Ltd. Bermuda EX-23 13 EXHIBIT 23 Exhibit 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-56066, 2-85158, 33- 15439 and 33-35667) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-51117) of Bausch & Lomb Incorporated of our report dated January 24, 1997 appearing in the 1996 Annual Report to Shareholders of Bausch & Lomb Incorporated which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our above report on the Financial Statement Schedule. PRICE WATERHOUSE LLP Rochester, New York March 26, 1997 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 24, 1997 appearing in the 1996 Annual Report to Shareholders of Bausch & Lomb Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Rochester, New York January 24, 1997 EX-24 14 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY The undersigned directors of Bausch & Lomb Incorporated (the "Company"), each hereby constitutes and appoints William M. Carpenter and Stephen A. Hellrung, or either of them, his or her respective true and lawful attorneys and agents, each with full power and authority to act as such without the other, to sign for and on behalf of the undersigned the Company's Annual Report on Form 10-K for the year ended December 28, 1996, 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 25th day of February 1997. /s/Franklin E. Agnew /s/John R. Purcell /s/William Balderston III /s/Linda Johnson Rice /s/William M. Carpenter /s/Alvin W. Trivelpiece /s/Domenico De Sole /s/William H. Waltrip /s/Jonathan S. Linen /s/Kenneth L. Wolfe /s/Ruth R. McMullin EX-27 15 EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 12-MOS QTR-4 DEC-28-1996 DEC-28-1996 DEC-28-1996 DEC-28-1996 166,988 166,988 841 841 281,639 281,639 13,278 13,278 339,782 339,782 947,625 947,625 1,146,927 1,146,927 (580,184) (580,184) 2,603,432 2,603,432 929,090 929,090 236,270 236,270 24,171 24,171 0 0 0 0 857,734 857,734 2,603,432 2,603,432 1,926,780 434,764 1,926,780 434,764 872,328 210,874 872,328 210,874 863,616 203,745 8,556 1,782 51,718 13,900 168,897 49,117 63,721 26,885 83,052 15,846 0 0 0 0 0 0 83,052 15,846 1.47 .29 1.47 .29 Income Before Taxes and Minority Interest
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