-----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, JM2y4LMGVO5i7LcyUfM0S0V0Z3VeN20K5fcFbNMImVV2xSDeSpWYPYCKhsE75UiS dgaQw4+XeFLTKVuF6m8Erw== 0000010427-99-000011.txt : 19990310 0000010427-99-000011.hdr.sgml : 19990310 ACCESSION NUMBER: 0000010427-99-000011 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19990309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAUSCH & LOMB INC CENTRAL INDEX KEY: 0000010427 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 160345235 STATE OF INCORPORATION: NY FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-04105 FILM NUMBER: 99560134 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: 7163386000 MAIL ADDRESS: STREET 1: ONE BAUSCH & LAMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended Commission File June 27, 1998 Number: 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) New York 16-0345235 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Bausch & Lomb Place, Rochester NY 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 338-6000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares of Common stock of the registrant, outstanding as of June 27, 1998 was 55,888,043 consisting of 55,233,034 shares of Common stock and 655,009 shares of Class B stock which are identical with respect to dividend and liquidation rights, and vote together as a single class for all purposes. PART I - FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited interim consolidated financial statements of Bausch & Lomb Incorporated and Consolidated Subsidiaries have been prepared by the company in accordance with the accounting policies stated in the company's 1997 Annual Report on Form 10-K and should be read in conjunction with the Notes To Financial Statements appearing therein, and are based in part on approximations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation in accordance with generally accepted accounting principles have been included in these financial statements. BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF EARNINGS
Second Quarter Ended Six Months Ended Dollar Amounts In Millions - June 27, June 28, June 27, June 28, Except Per Share Data 1998 1997 1998 1997 Net Sales $635.1 $523.2 $1,188.1 $974.4 Costs And Expenses Cost of products sold 298.3 231.5 574.4 458.7 Selling, administrative and general 246.9 201.8 475.5 382.8 Research and development 22.9 16.1 43.5 31.7 Purchased in-process research and development - - 41.0 - Restructuring charges 7.6 26.1 11.3 38.9 575.7 475.5 1,145.7 912.1 Operating Earnings (Loss) 59.4 47.7 42.4 62.3 Other (Income) Expense Interest and investment income (10.7) (9.4) (20.7) (19.4) Interest expense 26.3 14.1 51.7 27.7 Gain from foreign currency, net (1.8) (2.7) (3.6) (3.8) Gain on divestitures (56.0) - (56.0) - (42.2) 2.0 (28.6) 4.5 Earnings Before Income Taxes And Minority Interest 101.6 45.7 71.0 57.8 Provision for income taxes 39.9 19.3 27.4 23.6 Earnings Before Minority Interest 61.7 26.4 43.6 34.2 Minority interest in subsidiaries 6.4 6.1 11.6 10.7 Net Earnings $ 55.3 $ 20.3 $ 32.0 $ 23.5 Retained Earnings At Beginning Of Period 878.9 913.6 916.5 924.7 Cash Dividends Declared: Common stock, $0.26 and $0.52 per share in both 1998 and 1997 14.6 14.5 28.9 28.8 Retained Earnings At End Of Period $919.6 $919.4 $919.6 $919.4 Basic Earnings Per Share $ 0.99 $ 0.37 $ 0.58 $ 0.42 Diluted Earnings Per Share $ 0.98 $ 0.36 $ 0.57 $ 0.42 Average Shares Outstanding - Basic (000s) 55,787 55,456 55,560 55,448 Average Shares Outstanding - Diluted (000s) 56,582 55,771 56,146 55,683 See Notes to Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET
June 27, December 27, Dollar Amounts In Millions 1998 1997 ASSETS Current Assets Cash, cash equivalents and short-term investments $ 147.5 $ 183.7 Trade receivables, less allowances of $28.6 and $14.0, respectively 511.4 374.8 Inventories, net 408.6 324.3 Deferred taxes, net 78.9 66.0 Other current assets 168.5 141.4 1,341.9 1,090.2 Property, Plant And Equipment, net 673.3 580.2 Goodwill And Other Intangibles, less accumulated amortization of $119.4 and $116.6, respectively 849.2 406.9 Other Investments 546.3 546.4 Other Assets 167.8 149.2 Total Assets $3,551.5 $2,772.9 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 765.7 $ 339.4 Current portion of long-term debt 26.6 4.4 Accounts payable 86.6 72.0 Accrued compensation 95.6 73.6 Accrued liabilities 370.6 365.9 Federal, state and foreign income taxes payable 39.6 32.0 1,384.7 887.3 Long-Term Debt, less current portion 783.5 510.8 Other Long-Term Liabilities 112.5 119.4 Minority Interest 437.7 437.0 Total Liabilities 2,718.4 1,954.5 Shareholders' Equity 4% Cumulative Preferred stock, par value $100 per share - - Class A Preferred stock, par value $1 per share - - Common stock, par value $0.40 per share, 60,198,322 shares issued 24.1 24.1 Class B stock, par value $0.08 per share, 970,405 and 856,905 shares issued, respectively 0.1 0.1 Capital in excess of par value 79.6 76.8 Retained earnings 919.6 916.5 Common and Class B stock in treasury, at cost, 5,280,684 and 5,846,286 shares, respectively (200.7) (223.1) Accumulated other comprehensive income 22.3 29.1 Other shareholders' equity (11.9) (5.1) Total Shareholders' Equity 833.1 818.4 Total Liabilities And Shareholders' Equity $3,551.5 $2,772.9 See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS
Six Months Ended June 27, June 28, Dollar Amounts In Millions 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 32.0 $ 23.5 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation 56.3 42.9 Amortization 22.7 10.3 Change in deferred income taxes 1.3 1.0 Gain on divestitures, net of taxes (32.8) - Restructuring charges, net of taxes 7.6 26.0 Purchased in-process research and development, net of taxes 24.6 - Loss on retirement of fixed assets 3.1 7.3 Changes in assets and liabilities: Trade receivables (72.7) (76.8) Inventories 5.8 14.9 Other current assets (19.0) (33.7) Accounts payable and accruals (94.6) (2.1) Income taxes (9.3) 32.7 Other long-term liabilities (9.9) (15.3) Net cash (used in) provided by operating activities (84.9) 30.7 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (90.0) (52.3) Net cash paid for acquisition of businesses (715.0) (44.1) Net cash received from divestitures 135.0 - Other 8.0 (5.5) Net cash used in investing activities (662.0) (101.9) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common and Class B shares - (10.2) Exercise of stock options 19.7 9.2 Net proceeds from notes payable 424.7 63.6 Proceeds from issuance of long-term debt 304.3 15.0 Repayment of long-term debt (7.5) (2.6) Payment of dividends (28.8) (28.8) Net cash provided by financing activities 712.4 46.2 Effect of exchange rate changes on cash, cash equivalents and short-term investments (1.7) (6.1) Net decrease in cash, cash equivalents and short term investments (36.2) (31.1) Cash, cash equivalents and short-term investments, beginning of period 183.7 167.8 beginning of period Cash, cash equivalents and short-term investments, end of period $147.5 $136.7 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 50.5 $ 27.4 Income taxes $ 24.0 $ 14.6 See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Dollar Amounts in Millions - Except Per Share Data NOTE A: Acquisitions and Divestitures 1) As described in the 1997 Annual Report on Form 10-K, on December 29, 1997, the company acquired Chiron Vision Corporation (Chiron Vision) from Chiron Corporation, and on December 31, 1997, it acquired Storz Instrument Company (Storz) from American Home Products. The acquisitions were accounted for as purchases, whereby the purchase price, including acquisition costs, was allocated to identified assets, including tangible and intangible assets, purchased research and development and liabilities based upon their respective fair values. The excess of the purchase price over the value of identified assets and liabilities, in the amount of $211, was recorded as goodwill and is being amortized over lives of twenty to forty years. The following selected, unaudited pro forma data is presented to provide a summary of the combined results of Bausch & Lomb, Chiron Vision and Storz as if the acquisitions had occurred as of the beginning of 1997. The pro forma data is for informational purposes only and may not necessarily reflect the results of operations had the companies operated as one for the three-and six-month periods ending June 28, 1997. No effect has been given for synergies, if any, that may be realized through the acquisition. Second Quarter Ended Six Months Ended (Unaudited) June 28, 1997 June 28, 1997 Net sales $627.7 $1,175.7 Operating earnings $53.5 $69.3 Net earnings $16.8 $12.9 Earnings per share - basic $0.30 $0.23 Earnings per share - diluted $0.30 $0.23 2) On May 22, 1998, the company sold its skin care business to The Andrew Jergens Company for $135 in cash plus the assumption of certain liabilities. NOTE B: Inventories Inventories consisted of the following: June 27, December 27, 1998 1997 Raw materials and supplies $118.2 $ 96.3 Work in process 39.4 23.4 Finished products 264.3 218.1 421.9 337.8 Less: Allowance for valuation of certain U.S. inventories at last-in, first-out cost 13.3 13.5 $408.6 $324.3 NOTE C: Property, Plant And Equipment Major classes of property, plant and equipment consisted of the following: June 27, December 27, 1998 1997 Land $ 27.1 $ 21.0 Buildings 401.8 392.2 Leasehold improvements 41.0 34.9 Machinery and equipment 878.7 727.0 1,348.6 1,175.1 Less: Accumulated depreciation 675.3 594.9 $673.3 $ 580.2 NOTE D: Adoption of SFAS No. 130 In the first quarter of 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. Under SFAS 130, the term "comprehensive income" is used to describe the total of net earnings plus other comprehensive income which, for the company, includes foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for- sale. The adoption of SFAS 130 did not impact the calculation of net earnings or earnings per share nor did it impact reported assets, liabilities or total shareholders' equity. It did impact the presentation of the components of shareholders' equity within the balance sheet and will result in the presentation of the components of comprehensive income within an annual financial statement, which must be displayed with the same prominence as other financial statements. The components of the company's total comprehensive income were: Three Months Ended Six Months Ended June 27, June 28, June 27, June 28, 1998 1997 1998 1997 Net earnings $55.3 $20.3 $32.0 $23.5 Foreign currency translation adjustments, net of taxes 6.6 (4.5) (6.8) (38.4) Unrealized holding gain, net of taxes - - - 11.8 Total Comprehensive Income $61.9 $15.8 $25.2 $(3.1)
NOTE E: Subsequent Event On July 24, 1998, the company sold $300 of putable/callable notes and $200 of 30-year debentures. Settlement occurred on July 29, 1998. Proceeds were used to reduce short-term debt, and as a result the company reduced its 364-day revolving credit facility to $400 from $900. This reduced amount, added to the existing $300 5-year revolving credit facility, brings total revolving credit to $700. The $300 notes were issued in three equal tranches of $100 each. The first, maturing on August 1, 2011 with a put/call option on August 1, 2001, bears interest at 6.15%. The second, maturing on August 1, 2013 with a put/call option on August 1, 2003, bears interest at 6.375%. The third, maturing on August 1, 2025 with a put/call option on August 1, 2005, bears interest at 6.50%. The 30-year debentures, maturing August 1, 2028, bear interest at 7.125%. The company's long-term debt continues to be rated Baa2 by Moody's Investors Service and BBB by Standard & Poor's. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 an updated 1998 outlook. References within this financial review to earnings per share refer to diluted earnings per share. RESULTS OF OPERATIONS Comparability of Business Segment Information Comparison of the company's 1998 and 1997 second quarter and six- month operating results requires the consideration of certain significant events. As announced in April 1997, the company's board of directors approved plans to restructure portions of each of the company's four business segments, as well as certain corporate administrative functions. The restructuring efforts have been ongoing and resulted in pre-tax restructuring charges of $8 and $11 for the three- and six-month periods ending in June 1998, respectively, compared to charges of $26 and $39, respectively, recorded for the equivalent 1997 periods. The after-tax impact of these charges for the three- and six-month periods were, for 1998, $5 or $0.09 per share and $8 or $0.13 per share, respectively, and, for 1997, $18 or $0.33 per share and $26 or $0.47 per share, respectively. During the fourth quarter of 1997, the company divested its thin film business, which was reported in the eyewear segment. This business contributed sales of $5 and $9, respectively, for the three- and six-month periods ending in June 1997 and operating losses of $1 and $2, respectively, for the same periods. As described in Note A, the company acquired Chiron Vision and Storz during the first quarter of 1998. The purchase price was allocated to net assets acquired and to purchased in-process research and development (R&D). Purchased in-process R&D includes the value of products in the development stage not considered to have reached technological feasibility. In accordance with applicable accounting rules, purchased in-process R&D is required to be expensed, and, accordingly, a pre-tax charge of $41 was recorded during the first quarter of 1998. The after-tax impact for the six-month period was $25 or $0.44 per share. As described in Note A, the company sold its skin care business during the second quarter of 1998. As a result, a non- recurring gain of $56 ($33 or $0.58 per share after taxes) was recorded. This business was reported in the healthcare segment and contributed sales and operating earnings of $6 and $3, respectively, during the quarter ended June 1998 and $11 and $3, respectively, for the equivalent quarter in 1997. For the six months ending June 1998 and June 1997, the skin care business contributed sales of $19 and $24, respectively, and operating earnings of $3 in each period. NET SALES BY BUSINESS SEGMENT The company's operating results are reported in four business segments: vision care, eyewear, pharmaceuticals/surgical and healthcare. The vision care segment includes contact lenses and lens care products. The eyewear segment includes sunglasses, vision accessories and the divested thin film coating business. The pharmaceuticals/surgical segment includes prescription ophthalmics, over-the-counter (OTC) medications, and cataract, refractive and other ophthalmic surgery products. The healthcare segment includes biomedical products and services, hearing aids and the divested skin care business. The following is a summary of sales by business segment: Net Sales By Business Segment Second Quarter Six Months 1998 1997 1998 1997 Vision Care $242.8 $233.3 $ 458.8 $434.7 Eyewear - ongoing 148.5 152.1 260.8 269.3 Pharmaceuticals/Surgical 162.9 54.0 301.6 103.1 Healthcare - ongoing 75.3 67.8 147.7 134.6 Continuing Net Sales 629.5 507.2 1,168.9 941.7 Divested 5.6 16.0 19.2 32.7 Net Sales $635.1 $523.2 $1,188.1 $974.4 Total net sales for the quarter ended June 27, 1998 increased $112 or 21% from the 1997 second quarter. The results include $104 in 1998 second-quarter revenues generated by the acquired pharmaceutical and surgical product lines. When results for the divested skin care and thin film businesses are excluded from the 1998 and 1997 results, revenues increased $122 or 24%. On a constant dollar basis (that is, excluding the effect of foreign currency exchange rate changes), continuing business revenues increased 28% compared to the prior-year period, with revenue increases in all segments. Vision Care Segment Revenues The vision care segment includes results of the contact lens and lens care businesses, with lenses comprising 47% and lens care representing 53% of 1998 year-to-date revenues compared to 45% and 55%, respectively, for the same 1997 period. For the second quarter of 1998, revenues increased 4% (8% on a constant dollar basis) from the 1997 second quarter, resulting from an 8% improvement in contact lens sales combined with a 1% increase in lens care. Contact lens revenue gains, 13% in constant dollars, were driven by continued strong growth in planned replacement and disposable lenses (collectively PRP), including SofLens one day disposable lenses in Europe which experienced a doubling of sales compared with the prior year period. PRP revenue gains in other regions were led by strong growth of Medalist lenses in Japan as well as by incremental sales from the recently launched SofLens66 in Latin American markets. Revenues from lens care products were up 4% when adjusted for currency, reflecting strong growth and market share gains for the ReNu line of multipurpose lens care products. Year-to-date, vision care revenues increased 6% (9% on a constant dollar basis). Improvement was driven primarily by contact lens sales which have posted 14% constant dollar increases compared to 1997. Eyewear Segment Revenues The following analysis excludes results from the divested thin film business. Eyewear segment results are primarily driven by sales of sunglass products, which account for over 95% of this segment's portfolio. For the second quarter of 1998, eyewear segment revenues decreased 2% from the comparable 1997 period. On a constant dollar basis, segment revenues increased 1%. Sunglass revenues in the U.S. increased 1% despite lower sales to Sunglass Hut International, the region's largest customer. Outside the U.S., eyewear revenues in constant dollars were flat with 1997, reflecting difficult economic situations in the Asia-Pacific region and poor weather conditions in northern Europe. Year-to-date, segment revenues declined 3% from 1997 and were flat on a constant dollar basis. U.S. sunglass revenues declined 7%. Non-U.S. revenues decreased 1% but increased 3% after adjusting for currency. In line with the company's goal to bring its new sunglass styles to market faster, the 1998 line was launched in the fourth quarter of 1997, one quarter sooner than in prior years. The earlier launch contributed to the year-over- year sales decline since 1997 sales reflected the launch of new products while 1998 sales did not. Additionally, sales to Sunglass Hut International were lower, reflecting inventory management initiatives by that customer. Pharmaceuticals/Surgical Segment Revenues Second-quarter revenues for the pharmaceutical/surgical segment increased $109 versus 1997, reflecting the first-quarter addition of the former Chiron Vision and Storz product lines. Pharmaceutical revenues for 1998 increased 17%, or 19% on a constant dollar basis. In the U.S., pharmaceuticals revenues for the quarter increased 18% over 1997 due to acquired product lines, as well as increased revenues from Trimethoprim and Crolom and the introduction of Lotemax and Alrex. Also contributing to this increase was the general eye care business, where continued strength of Opcon-A and an unusually strong and early allergy season drove a double-digit increase in revenues from 1997. Pricing pressures on generic products in the company's portfolio partially offset these sales increases. Second quarter non-U.S. pharmaceuticals revenues improved 15% over the prior year, reflecting results for the company's Dr. Mann Pharma subsidiary in Germany, which benefited from a second quarter 1998 acquisition. Double-digit constant dollar sales growth in prescription ophthalmics in combination with improved results in the OTC business also contributed to the second quarter sales performance. Year-to-date, revenues for the segment increased $199 from 1997, due mainly to the acquired product lines. Excluding these incremental sales, pharmaceuticals revenues were up 1% or 4% on a constant dollar basis. U.S. sales advanced 19% or 4% if sales from acquired product lines are excluded. Outside the U.S., strong sales growth in prescription products was moderated by pharmacy inventory reductions in the OTC business in Germany. Healthcare Segment Revenues The following analysis excludes 1998 and 1997 revenues from the divested skin care business. Healthcare segment revenues for the second quarter of 1998 increased $8 or 11% (13% on a constant dollar basis) over the comparable period in 1997. Year-to-date revenues increased $13 or 10% (13% on a constant dollar basis). Sales of biomedical products rose 8% in the quarter and 7% year- to-date, driven primarily by strong increases in the biotechnology and services business. Hearing aid revenues advanced 24% in the quarter and year-to-date as the number of company-owned retail outlets continued to increase. Net Sales By Geographic Region The following analysis excludes revenues from the divested thin film and skin care businesses. Sales in markets outside the U.S. totaled $319 in the second quarter of 1998, an increase of $56 or 21% compared with the 1997 period, and represented 51% of consolidated revenues compared to 52% in 1997. Year-to-date sales were $589 compared to $486 in 1997, an increase of 21%, representing 50% and 52% of consolidated revenues, respectively. Non-U.S. sales from the acquired surgical businesses and increased revenues for vision care products more than offset declines in the eyewear segment. For both the three- and six-month periods, currency exchange rates had a negative impact on non-U.S. sales of approximately 7%. Second-quarter sales in the European region advanced 28% versus 1997, or 31% in constant dollars, due in large part to incremental surgical sales and growth for vision care products. Excluding currency, sunglass sales were up slightly on a year-to- date basis. Second quarter sales in the Asia-Pacific region advanced 10%, or 25% in constant dollars, due in large part to incremental surgical sales and to the strong growth of PRP lenses throughout most of the region. Revenues in Japan were down 2% versus 1997 for the quarter, but improved 10% in constant dollars due primarily to the continued success of Medalist contact lenses. Revenues in Canada and Latin America increased 31% over the prior quarter and 32% over the prior year-to-date due mainly to incremental surgical sales as well as to the performance of contact lenses and solutions, led by ReNu MultiPlus. U.S. sales totaled $311 in the second quarter, an increase of $67 or 27% from 1997, due primarily to incremental surgical sales. For the year, sales increased $124 to $579, an increase of 27%, again primarily due to acquired businesses. However, slight growth in vision care products along with gains for pharmaceuticals and hearing aids contributed to the favorability. Sunglass revenues were up 1% for the quarter, though down 7% overall for the year versus 1997. Costs And Expenses The following analysis excludes results from the divested thin film and skin care businesses. The ratio of cost of products sold to sales was 47.1% during the second quarter of 1998 versus 44.1% in 1997. For the six- month period, this ratio was 48.7% for 1998 and 47.1% for 1997. The 1998 ratio reflected the $32 impact of higher reported cost of products sold, $16 in the second quarter, resulting from purchase accounting inventory adjustments related to the surgical acquisitions. The 1997 ratio reflected a $9 provision for the projected cost of exiting certain Ray-Ban product lines. Integration costs resulting from the surgical acquisitions contributed to this unfavorable variance, but were partially offset by favorable manufacturing costs in the eyewear segment. Selling, administrative and general expenses, including corporate administration, were 39.0% of sales in the second quarter of 1998 compared to 38.7% in 1997. Year-to-date, these expenses were 39.8% versus 39.0%. The year-over-year unfavorable ratios reflected planned increases in marketing and advertising, higher selling costs as well as the incremental expenses and integration costs associated with the transition of the acquired product lines of Chiron Vision and Storz. Included in the 1997 year-to-date amount was a $2 provision for the write-off of the company's equity investment in a start-up eyewear technology venture recorded in the first quarter. Corporate administration expenses were 1.7% of sales in the second quarter of 1998, versus 2.3% in the same period of 1997. Year-to-date, the figures were 1.9% versus 2.5%. These amounts reflect the continued efforts in expense reduction resulting from company-wide restructuring and a higher sales base due to the surgical acquisitions. R&D expenses totaled $23 in the second quarter of 1998, an increase of $7 over 1997. This represented 3.6% of sales in 1998, as compared to 3.1% in 1997. On a year-to-date basis, R&D expense was 3.7% of sales versus 3.3% in 1997. The increase is due primarily to spending in the pharmaceuticals/surgical segment. Restructuring Reserves As described in previous filings, in the first quarter of 1997 the company's board of directors approved plans to restructure all business segments as well as certain corporate administrative functions. As a result, cumulative pre-tax restructuring charges of $74 were recorded throughout 1997. In the first six months of 1998 additional charges of $11 were recorded in connection with these programs, of which $8 was recorded in the second quarter. The restructuring effort is expected to significantly reduce the company's fixed cost structure and realign the organization to meet its strategic objectives through the closure, relocation and consolidation of manufacturing, distribution, sales and administrative operations, and workforce reductions. The following table sets forth the activity in the restructuring reserve through June 27, 1998: Vision Pharmaceuticals/ Corporate Care Eyewear Surgical Healthcare Administration Total Restructuring Provisions $23.3 $41.4 $5.0 $5.9 $9.9 $85.5 Less charges: Non-cash items 3.3 7.1 - 1.8 0.3 12.5 Cash payments 12.1 22.4 3.4 2.3 8.9 49.1 Balance at June 27, 1998 $ 7.9 $11.9 $1.6 $1.8 $0.7 $23.9
Reserves remaining primarily represent liabilities related to employee separations. No further provisions are expected to be recorded for the 1997 restructuring program. Operating Earnings For the second quarter of 1998, the company's reported operating earnings were $59, compared to earnings of $48 for the same 1997 period. Ongoing businesses generated operating earnings of $57 compared to $45 in 1997. Excluding restructuring charges recorded in both periods, ongoing operating earnings would have been $64 versus $72. On a year-to-date basis, the company reported operating income of $42 compared to $62 in the prior year. Ongoing businesses generated income of $40 as compared to $61 in 1997. This decrease was primarily driven by the purchase accounting adjustment for in-process research and development related to the acquisitions of the surgical businesses. Excluding this charge and restructuring charges in both periods, operating earnings from ongoing businesses would have been $92 in 1998 versus $100 in 1997. The decrease in comparable basis results for both the quarter and year-to-date was driven mainly by increased operating expenses in the vision care and eyewear segments, the one-time write-up of inventory related to the surgical acquisitions and by the impact of currency, which were partially offset by incremental results in the pharmaceuticals/surgical segment. Other Income And Expenses As noted previously, the company sold its skin care business during the second quarter of 1998, resulting in a pre-tax gain of $56. Income from investments totaled $11 for the second quarter, an increase of $1 over the same period in 1997. Interest expense for the quarter of $26, an increase of $12 over the second quarter of 1997, reflected the incremental debt associated with recent acquisitions. Foreign currency gains of $2 were primarily the result of favorable hedging activities. LIQUIDITY AND FINANCIAL RESOURCES Cash Flows From Operating Activities Cash used in operating activities was $85 through the second quarter of 1998, a $116 unfavorable change versus the comparable 1997 period. Seasonal increases in accounts receivable and a payment of $42 to fund a proposed settlement of litigation commenced in a prior year were the primary drivers of the cash usage. Reasons for the unfavorability to the prior year period include the litigation settlement and the timing of tax payments and refunds. Cash Used In Investing Activities Cash used in investing activities was $662 for the first six months of 1998, an increase of $560 from the comparable 1997 period, reflecting acquisitions and capital spending offset by an inflow from the skin care divestiture. Capital spending, which increased $38 to $90 compared to the prior year period, is expected to be in the range of $200 for 1998. A significant portion of 1998 capital spending will be used to support expanded contact lens manufacturing capacity. Cash Provided By Financing Activities Through the second quarter of 1998, $712 was provided by financing activities versus $46 for the comparable 1997 period. New borrowings, totaling $729 for the six-month period, were primarily used to fund acquisitions and capital expenditures, and to finance the previously noted seasonal increase in trade receivables and the proposed settlement of litigation. Free Cash Flow The company strives to maximize its free cash flow, 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 through the first half of 1998 was negative $169 compared to negative $33 in the prior year. The decrease is due to the operational factors described above. Financial Position The company's total debt, consisting of short- and long-term borrowings, increased $721 from year-end 1997 due primarily to the borrowings needed to consummate recent acquisitions and to meet previously noted operational cash requirements. The increase in debt is reflected in the ratio of total debt to capital, which was 65.4% at the end of the second quarter of 1998 versus 50.5% at the end of the comparable 1997 period. During the second quarter, the company used cash proceeds from the sale of the skin care business to reduce outstanding short-term debt. Cash and short-term investments totaled $148 at the end of the 1998 second quarter compared to $184 at December 1997 and $137 at June 1997. Access to Financial Markets The company maintains U.S. revolving credit agreements, with both 364-day and 5-year terms, totaling $700. The interest rate under these agreements is based on the LIBOR rate, or, at the company's option, the higher of several other common indices. No debt was outstanding under these agreements as of June 27, 1998. At June 27, 1998, the 5-year term portion of these revolving credit agreements supported $300 of unsecured promissory notes which have been classified as long-term debt. In addition, the company maintains other lines of credit on which it may draw to meet its financing requirements. During 1998, the company filed a registration statement with the Securities and Exchange Commission, authorizing borrowings of up to $500 in the long-term U.S. public markets. As explained in Note E, underwriters purchased the entire authorized amount during July 1998. Proceeds were used to reduce short-term debt. The company believes its existing credit facilities will provide adequate liquidity to meet obligations, fund capital expenditures and invest in potential growth opportunities. Working Capital Working capital amounted to negative $70 at the end of the second quarter of 1998, reflecting increased short-term borrowings associated with recent acquisitions. Working capital was $203 at year-end 1997 and $34 at the end of the second quarter of 1997. The current ratio was .9, 1.2 and 1.0 for these periods, respectively. OTHER FINANCIAL DATA Dividends declared on common stock were $0.26 per share in the second quarters of both 1998 and 1997. The return on average shareholders' equity of 7.1% for the twelve-month period ended June 27, 1998 reflected restructuring charges recorded in each of the last four quarters, the first quarter 1998 charge for purchased in-process R&D and a fourth quarter 1997 charge for the proposed litigation settlement. This ratio was 6.2% for the twelve-month period ending June 28, 1997. OUTLOOK Worldwide revenues and operating earnings on a constant dollar basis for all major businesses were in line with management's expectations for the second quarter. Assuming currency rate stability, the company expects revenue and earnings increases over the remainder of the year. Margins are expected to continue to strengthen, as comparisons will be against more equivalent currency exchange rates and the remainder of this year's sunglass manufacturing savings are realized. Additionally, cost of goods sold as a percent of sales should be lower, as the unfavorable impact of the inventory write-up associated with the surgical acquisition was fully reflected in cost of goods sold in the first two quarters. In the vision care segment, revenue growth should continue throughout the remainder of the year as new products are introduced. These include the disposable toric lens, which is expected to be introduced in the U.S. during the fourth quarter, and PureVision, a continuous wear lens that recently received approval for marketing in Europe and which may receive FDA clearance for 7-day wear before the end of this year. The business will also benefit from continued market expansion of the SofLens one day lens as production increases. Third quarter revenues should continue the performance trends noted during the first six months, although comparisons to 1997 will be difficult as ReNu MultiPlus was launched during that time frame. The company's goal is to realize 5% operating margins in 1998 in the eyewear segment. During the second half of the year, revenue growth is expected from more normalized buying patterns from Sunglass Hut International and from the introduction of the new 1999 sunglass styles. The pharmaceuticals/surgical segment is expected to experience accelerated growth throughout the rest of the year, due to newly introduced and acquired products and share gains in all of the company's pharmaceuticals businesses. Going into the year, expectations for the surgical business were that its impact on 1998 earnings per share would be neutral excluding the previously noted one-time charges for purchased in-process R&D and higher cost of products sold resulting from purchase accounting inventory adjustments. With the progress made to date, the business is on target to meet or exceed that goal. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS When used in this discussion, the words "anticipate," "should," "expect," "estimate," "project" and similar expressions are intended to identify forward-looking statements. The forward- looking statements contained in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve predictions of future company performance, and are thus dependent on a number of factors affecting the company's performance. Where possible, specific factors that may impact performance materially have been identified in connection with specific forward-looking statements. Additional risks and uncertainties include, without limitation, the impact of competition, seasonality and general economic conditions in the global sunglass, vision care and ophthalmic surgical and pharmaceutical markets, where the company's core businesses compete, changes in global economic and political conditions, customer concentration (the company's two largest customers accounted for over 10% of total sales in 1997), changing trends in consumer preferences and tastes, legal proceedings initiated by or against the company, changes in government regulation of the company's products and operations, changes in private and regulatory schemes providing for the reimbursement of patient medical expenses, difficulties or delays in the development, production, testing and marketing of products and the effect of changes within the company's organization, and such other factors as are described in greater detail in the company's filings with the Securities and Exchange Commission, including its 1997 Annual Report on Form 10-K. PART II - OTHER INFORMATION Item 1. Legal Proceedings In its 1997 Annual Report on Form 10-K, the company discussed a class action pending before a New York Supreme Court alleging that the company misled consumers in its marketing and sale of Sensitive Eyes Rewetting Drops, Boston Rewetting Drops, Renu Rewetting Drops and Bausch & Lomb Eye Wash. On April 21, 1998, the court dismissed all of the plaintiffs' claims. The plaintiffs have appealed this ruling. Item 4. Submission of Matters to a Vote of Security Holders The 1998 annual meeting of shareholders was held on April 28, 1998. The following matters were voted upon and received the votes set forth below: 1. The individuals named below were elected to three-year terms as directors. Votes Cast Director For Withheld Domenico De Sole 49,910,285 596,841 Kenneth L. Wolfe 49,916,695 590,432 Directors continuing in office are Franklin E. Agnew, William M. Carpenter, Jonathan S. Linen, Ruth R. McMullin, John R. Purcell, Linda Johnson Rice, Alvin W. Trivelpiece, Ph.D.and William H. Waltrip. 2. The election of PricewaterhouseCoopers LLP as independent accountants for 1998 was ratified, with 49,561,529 shares voting for, 873,597 shares voting against, and 72,064 shares abstaining. 3. An amendment to the 1990 Stock Incentive Plan was approved, with 49,379,468 shares voting for, 1,875,129 shares voting against, and 252,592 shares abstaining. 4. The Bausch & Lomb Management Incentive Compensation Plan was approved, with 48,350,759 shares voting for, 1,890,521 shares voting against, and 265,909 shares abstaining. 5. A shareholder proposal recommending that the board of directors maximize shareholder value by arranging for the sale of the company was defeated, with 1,726,691 shares voting for, 45,166,213 shares voting against, and 698,564 shares abstaining. 6. A shareholder proposal requesting that the board of directors eliminate the staggered three-year terms served by board members passed with 27,640,262 shares voting for, 19,393,464 shares voting against, and 557,782 shares abstaining. Item 6. Exhibits and Reports on Form 8-K (a) Item 601 Exhibits Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 27, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAUSCH & LOMB INCORPORATED Date: March 9, 1999 By: Robert B. Stiles Senior Vice President and General Counsel Date: March 9, 1999 By: Stephen C. McCluski Senior Vice President and Chief Financial Officer EXHIBIT INDEX S-K Item 601 No. Document (4)-a Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (4)-a to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 1-4105, and incorporated herein by reference). (4)-b Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-b to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (4)-c Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-c to the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (4)-d Form of Indenture, dated as of September 1, 1991, between the company and Citibank, N.A., as Trustee, with respect to the company's Medium-Term Notes (filed as Exhibit (4)-a to the company's Registration Statement on Form S-3, File No. 33- 42858, and incorporated herein by reference). (4)-e Rights Agreement between the company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the company's Current Report on Form 8-K dated July 25, 1988, File No. 1-4105, and incorporated herein by reference). (4)-f Amendment to the Rights Agreement between the company and The First National Bank of Boston, as successor to Chase Lincoln First Bank, N.A. (filed as Exhibit 1 to the company's Current Report on Form 8-K dated July 31, 1990, File No. 1-4105, and incorporated herein by reference). (10)-a 1998 Amendment to the Bausch & Lomb Incorporated 1990 Stock Incentive Plan (filed herewith). (10)-b Management Incentive Compensation Plan (filed herewith). (10)-c LTI Deferred Compensation Plan (filed herewith). (11) Statement Regarding Computation of Per Share Earnings (filed herewith). (12) Statement Regarding Computation of Ratio of Earnings to Fixed Charges (filed herewith). (27) Financial Data Schedule (filed herewith). EX-10.A 2 Bausch & Lomb Incorporated Exhibit 10-A 1998 Amendment to the Bausch & Lomb Incorporated 1990 Stock Incentive Plan I. A new sentence is added at the end of Section 1 to read as follows: It is intended that awards granted under the Plan will comply with the requirements of Code Section 162(m) as it relates to allowing for deduction by the Company of compensation paid to executives, unless otherwise designated by the Committee in accordance with Section 11 herein. II. The text of current Section 4 is hereby redesignated as Section 4(a) and a new Section 4(b) is hereby added to read as follows: (b) Subject to adjustment as provided in Sections 9 and 10, unless and until the Committee determines that an award under the Plan to an officer who, as of the date of vesting and/or payout of the award, as applicable, is, or reasonably may be expected to be, one of the group of "covered employees," as defined in the regulations promulgated under Code Section 162(m), or any successor statute (a "Covered Employee") shall not be designed to comply with the performance-based exception from the tax deductibility limitations of Code Section 162(m) (the "Performance Based Exception"), the following rules shall apply to grants of such awards under the Plan: (1) Stock Options: The maximum aggregate number of shares of Class B stock that may be granted in the form of options, pursuant to any award granted in any one fiscal year to any one single participant shall be five hundred thousand (500,000). (2) Alternate Rights: The maximum aggregate number of shares of Class B stock that may be granted in the form of stock appreciation rights or accelerated rights pursuant to any award granted in any one fiscal year to any one single participant shall be five hundred thousand (500,000). (3) Stock Grants: The maximum aggregate grant with respect to awards of Stock Grants granted in any one fiscal year to any one participant shall be two hundred fifty thousand (250,000) shares. III. Section 8 prior to Section 8(a) shall be amended to read as follows: The Committee may make a grant, evidenced by such written agreement as the Committee shall, from time to time, prescribe, to any officer or other key employee consisting of a specified number of shares of the Company's Class B stock, as defined in Section 4 ("Stock Grants"). A Stock Grant shall be neither an option nor a sale. The Committee, in its discretion, shall decide whether any Stock Grant shall be subject to certain conditions and restrictions, such conditions and restrictions designated by the Committee. In such a case, appropriate written notice of the conditions and restrictions shall be set forth in the document effecting the grant ("Restricted Stock"). Restricted Stock shall be subject to, but not limited to, the following conditions and restrictions: IV. Section 9 is hereby amended to read as follows: 9. Recapitalization. In the event there is any recapitalization in the form of a stock dividend, distribution, split, subdivision or combination of shares of Common stock of the Company, resulting in an increase or decrease in the number of Common shares outstanding, and there is not a corresponding recapitalization in the Class B shares, the number of Class B shares then available for grants or options under the Plan or covered by then outstanding grants or options or authorized pursuant to Section 16 of the Plan shall not change. In such a case, the award limits set forth in Section 4(b) hereof shall also not change. However, a proportionate adjustment shall be made in the number of shares of Common stock the aggregate value of which will determine the purchase price of a Class B share or which are exchangeable by the Company for a Class B share. In the event there is a recapitalization resulting in an increase or decrease in the number of Common shares 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, the number of shares covered by outstanding grants or options and the price per share thereof in each such grant or option, and the award limits set forth in Section 4(b) of the Plan shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price. V. A new sentence is added at the end of Section 10 to read as follows: The award limits designated in Section 4(b) shall also be adjusted in such a case so that the Plan shall thereafter cover the number and class of shares equivalent to the shares covered by the Plan immediately prior to such event. VI. Current Sections 11 through 16 are renumbered 13 through 18, respectively, and all references to such Sections within the Plan shall also change accordingly. VII. A new Section 11 is added to read as follows: 11. Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, all awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided, however, that in the event the Committee determines that such compliance is not desired with respect to any award or awards available for grant under the Plan, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code Section 162(m) to permit greater flexibility with respect to any award or awards available under the Plan, the Committee may, subject to the terms of the Plan, make any adjustments it deems appropriate. VIII. A new Section 12 is added to read as follows: 12. Performance-Based Awards. The performance measure(s) to be used for purposes of grants to Covered Employees which are designed to qualify for the Performance-Based Exception, the attainment of which may determine the degree of payout and/or vesting with respect to such awards, shall be chosen from among: (a) Earnings per share; (b) Net income (before or after taxes); (c) Return on assets, return on equity, and return on sales; (d) Cash flow return on investments which equals net cash flow divided by shareholders' equity; (e) Share price, growth in share price, and total shareholder return; and (f) Changes in Economic Value Added. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the preestablished performance goals; provided, however, that awards which are designed to qualify for the Performance-Based Exception, and which are held by a Covered Employee, may not be adjusted upward (the Committee shall retain the discretion to adjust such awards downward). In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Code Section 162(m). IX. Except as provided herein, the Plan shall remain in full force and effect. EX-10.B 3 Bausch & Lomb Incorporated Exhibit 10-B Management Incentive Compensation Plan Article 1. Establishment, Objectives, and Duration 1.1. Establishment of the Plan. Bausch & Lomb Incorporated, a New York corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Bausch & Lomb Incorporated Management Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Incentive Awards to certain executives of the Company. Subject to approval by the Company's shareholders, the Plan shall become effective as of January 1, 1998 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof. 1.2. Purpose of the Plan. The Plan is intended to allow for the grant of Incentive Awards to certain executives of the Company which comply with the requirements of Code Section 162(m). 1.3. Duration of the Plan. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof and shall remain in effect, subject to the right of the Board of Directors, to amend the Plan at any time pursuant to Article 10 hereof, until terminated by the Board of Directors in accordance with Article 10. Article 2. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized: 2.1. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act. 2.2. "Award" means, individually or collectively, a grant of Incentive Awards under this Plan. 2.3. "Beneficial Owner" or "Beneficial Ownership" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. 2.4. "Board" or "Board of Directors" means the Board of Directors of the Company. 2.5. "Bonus Pool" shall mean the pool of funds described in Section 5.2 from which Incentive Awards shall be paid. 2.6. "Bonus Pool Percentage" shall mean the percentage ascribed to each eligible Participant under Section 5.1. 2.7. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. 2.8. "Committee" means the Committee on Management of the Board of Directors, or any other committee appointed by the Board to administer Awards under the Plan. 2.9. "Company" means Bausch & Lomb Incorporated, a New York corporation, including any and all Subsidiaries and Affiliates, and any successor thereto as provided in Article 12 herein. 2.10."Covered Employee" means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is one of the group of "covered employees," as defined in the regulations promulgated under Code Section 162(m), or any successor statute. 2.11."Director" means any individual who is a member of the Board of Directors of the Company or any Subsidiary or Affiliate. 2.12."Effective Date" shall have the meaning ascribed to such term in Section 1.1 hereof. 2.13."Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. 2.14."Executive Officer" means any executive officer of the Company who is also an Insider of the Company. 2.15."Incentive Award" means an Award granted to a Participant, as described in Article 5 herein. 2.16."Insider" shall mean an individual who is, on the relevant date, an executive officer, director or more than ten percent (10%) beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act. 2.17."Participant" means an Executive Officer who has been selected to receive an Award or who has outstanding an Award granted under the Plan. 2.18."Performance-Based Exception" means the performance-based exception from the tax deductibility limitations of Code Section 162(m). 2.19."Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof. 2.20."Plan Year" shall mean the Company's fiscal year, unless otherwise designated by the Committee. 2.21."Subsidiary" means any corporation, partnership, joint venture, or other entity in which the Company has a majority voting interest. Article 3. Administration 3.1. General. The Plan shall be administered by the Committee on Management of the Board of Directors, or by any other Committee appointed by the Board. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of the Board of Directors. The Committee shall have the authority to delegate administrative duties to officers or Directors of the Company. 3.2. Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Executive Officers who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 9 herein) amend the terms and conditions of any outstanding Award as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law (and subject to Section 3.1 herein), the Committee may delegate its authority as identified herein. 3.3. Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding on all persons, including the Company, its shareholders, Directors, Executive Officers, Participants, and their estates and beneficiaries. Article 4. Eligibility and Participation 4.1. Eligibility and Participation. Only Executive Officers are eligible to participate in the Plan. 4.2. Partial Year Participation/Change in Status. Subject to the provisions of the Plan, in the event an Executive Officer becomes eligible to participate in the Plan or has a change in status which makes such individual eligible for participation or changes his or her eligibility in any way after the commencement of a Plan Year, the Committee may, in its discretion, allow such individual to receive Awards under the Plan on such terms as it so designates. Article 5. Incentive Awards 5.1. Grant of Incentive Awards. Subject to the terms of the Plan, the Committee may designate Executive Officers of the Company to receive Incentive Awards under the Plan. Incentive Awards shall be made from a Bonus Pool established for each Plan Year. The Committee shall allocate a Bonus Pool Percentage to each applicable Participant for each Plan Year. Such allocation shall be made within ninety (90) days of the commencement of the Plan Year. In no event may the Bonus Pool Percentage for any one individual Participant exceed thirty percent (30%) of the total Bonus Pool. In addition, the sum of all Participants' applicable Bonus Pool Percentages shall not exceed one hundred percent (100%) of the Bonus Pool. 5.2. Determination of Bonus Pool. The Bonus Pool shall be an amount equal to five percent (5%) of the Company's operating earnings for the Plan Year. The Bonus Pool amount for each Plan Year shall be determined by the Committee as soon as practicable following the close of such Plan Year. 5.3. Determination of Incentive Awards. As soon as possible after the final Bonus Pool amount can be determined, the Committee shall determine each Participant's allocated amount of the Bonus Pool by multiplying the final Bonus Pool amount for the Plan Year by each Participant's Bonus Pool Percentage. A Participant's Incentive Award shall then be determined based on the Participant's allocated portion of the Bonus Pool, as reduced in the sole discretion of the Committee. In no event, however, may a Participant's allocated portion of the Bonus Pool be increased as a result of a reduction of any other Participant's allocated portion. In reducing a Participant's Incentive Award, the Committee may consider any such factors it determines applicable. 5.4. Payment of Incentive Awards. Payment of Incentive Awards shall be made in such form and at such time or times as designated by the Committee. 5.5. Partial Awards. In the event a Participant ceases employment because of death, disability, or retirement prior to the date which the Committee determines Incentive Awards under the Plan for any Plan Year, the Committee may, but need not, provide for the partial or full payment of an Incentive Award for the year of termination and any Incentive Award from any prior Plan Year which has not yet been paid out. Unless otherwise specified by the Committee, Participants who terminate employment for reasons other than death, disability, or retirement prior to the date the Committee determines the Incentive Awards under the Plan will not be eligible to receive an Incentive Award for the year of termination or any payout of any Incentive Awards from a prior Plan Year which has not yet been paid out. 5.6. Nontransferability. Except as otherwise provided by the Committee, Incentive Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided by the Committee, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant's legal representative. Article 6. Beneficiary Designation. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. Article 7. Deferrals The Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash that would otherwise be due to such Participant by virtue of the satisfaction of any requirements or goals with respect to Incentive Awards. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. Article 8. Rights of Executive Officers 8.1. Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 8.2. Participation. No Executive Officer shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. Article 9. Amendment, Modification, and Termination 9.1. Amendment, Modification, and Termination. Subject to the terms of the Plan, the Committee may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, unless the Committee specifically provides otherwise, any revision or amendment that would cause the Plan to fail to comply with any requirement of applicable law, regulation, or rule, if such amendment were not approved by shareholders, shall not be effective unless and until such approval of shareholders of the Company is obtained. 9.2. Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. Article 10. Withholding The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan. Article 11. Indemnification Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. Article 12. Successors All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. Article 13. Legal Construction 13.1. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 13.2. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 13.3. Requirements of Law. The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 13.4. Governing Law. To the extent not preempted by federal law, the plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. EX-10.C 4 Bausch & Lomb Incorporated Exhibit 10-C LTI Deferred Compensation Plan 1. Introduction This LTI Deferred Compensation Plan (the "Plan") provides the opportunity for participants in the Bausch & Lomb Incorporated (the "Company") Long Term Incentive Plan (the "LTI Plan") to defer their awards under the LTI Plan. 2. Effective Date The effective date of this Plan is April 1, 1998 (the "Effective Date"). It covers eligible compensation earned after the Effective Date and deferred hereunder. 3. Eligibility Commencing on the Effective Date, the Plan is available to all participants in the LTI Plan who (1) are in the active employ of the Company on the date they make a deferral election and (2) are with a select group of management or highly compensated employees as provided for in Title I of ERISA. 4. Amount of Deferral An eligible employee may become a participant in the Plan by electing to defer any grant or award under the LTI Plan. Deferrals must be as to an entire grant, and partial deferrals of individual grants are not permitted. 5. Time of Deferral Election a) 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. Without limiting the generality of the foregoing, subparagraphs 5(b) and 5(c) and 5(d) identify particular instances as to when effective elections may be made. b) For any grants in the first calendar quarter of 1998 which have a performance cycle ending before to January 1, 1999, deferral elections may be made at any time after the Effective Date of this Plan but not later than April 30, 1998. c) For any person newly eligible to participate in the LTI Plan, an initial deferral election may be made at any time within 30 days of being newly eligible to participate in the LTI Plan. d) For any LTI Plan grants with a performance cycle of greater than one year, deferral elections may be made at any time prior to the end of the Bausch & Lomb fiscal year next preceding the final Bausch & Lomb fiscal year of the performance cycle. 6. Deferral Election a) To defer compensation under the Plan, a participant must give written notice to the Plan Administrator. This notice must include (1) identification, by Cycle End Date (as defined in the LT1 Plan), of the grant to be deferred; (2) the payment commencement date (i.e. retirement or date certain); (3) the method of payment desired (i.e. annual installments, lump sum) and, if annual, the number of years of installment payments; and (4) 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), which shall include identification of payment methods and installments as may be approved in advance by the Plan Administrator. 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) 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. d) 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. e) 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. 7. Deferred Compensation Investment Account a) An investment account will be established for each participant ("Investment Account") to record all deferrals a participant makes under this Plan plus all earnings on these deferrals. b) All deferrals will be deferred and, subject to subparagraphs (g) and (h) below, held in shares of Company Stock. c) Prior to the vesting of any grants, deferred shares will be held by the Plan as Class B shares of the Company. d) Upon vesting of any grants, shares previously held as Class B shares will be converted, on a one-to-one basis, to regular shares of Company Common stock and invested in a rabbi trust (the "Trust") established for this purpose. e) If any grant does not vest, all shares theretofore held by the Company as Class B stock shall be forfeited and the participant's Investment Account shall be adjusted to reflect such forfeiture. f) Dividends on deferred shares, whether vested or not, will be paid into the Trust and invested in regular shares of Company common stock. g) All investments in Investment Accounts under the Plan are hypothetical to the participant, regardless of whether or not the Plan holds Class B or Common shares, or other assets. At the time of each deferral of an LTI Plan award into the Plan, a participant will be credited with an imputed number of shares for the Investment Account. Participants will have no right to vote these imputed shares. Thereafter, the value of a participant's Investment Account will fluctuate in accordance with the actual performance of the Investment Account. Dividends on the imputed shares also will be credited to the participant's Investment Account. Distributions and forfeitures will be deducted from the Investment Account. h) All vested deferred amounts shall remain invested in Company Common stock until the participant is no longer in the active employ of the Company, at which time additional investment options, as determined by the Plan Administrator, may be made available. 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 or assets 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, after vesting of awards, assets used to pay deferred compensation required to be paid 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 or assets will be paid to the participant in accordance with the Plan, except in the event of the Company's bankruptcy or insolvency. 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 or assets already in his or her Investment Account. However, a participant may choose a different payment commencement date and/or method of payout for future deferrals subject to Section 6 above. c) 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 vested funds in his or her account under the Trust 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 obtain a distribution based on financial hardship which would create liability of the participant to the Company under Section 16. As used herein, the term "Section 16" shall mean Section 16 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 vested funds or assets held in the participant's Account under the Trust 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 obtain a distribution under this Subsection which would create liability of the participant to the Company under Section 16. 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) 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 payment within 15 days following the Change of Control; provided, however that amounts which shall be due and payable in accordance with this subparagraph 8(h) shall be paid, at the election of the participant, in a manner so as not to create liability of the participant to the Company under Section 16. i) 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 (i) (C) of this Section 8 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 Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, binding share exchange or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, binding share exchange or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, binding share exchange or consolidation; or D) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority 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 amendments, modification, or termination will, without the consent of the participant, adversely affect the participant's accruals in his or her deferred compensation account. BAUSCH & LOMB INCORPORATED By:______________________________ Daryl M. Dickson Sr. Vice President Human Resources Date:____________________________ EX-11 5 Bausch & Lomb Incorporated Exhibit 11 Statement Regarding Computation of Per Share Earnings (Share Amounts in Thousands Except Per Share Data) Three Months Ended Six Months Ended June 27, June 28, June 27, June 28, 1998 1997 1998 1997 Net Earnings (in millions) (a) $55.3 $20.3 $32.0 $23.5 Actual outstanding Common and Class B shares at beginning of period 55,610 55,527 55,209 55,404 Sum of weighted average activity of : (1) Common and Class B shares issued for stock options (2) repurchases of Common and Class B stock and (3) cancellation of outstanding stock options 177 (71) 351 44 Weighted basic shares (b) 55,787 55,456 55,560 55,448 Effect of assumed exercise of Common stock equivalents 795 315 586 235 Weighted diluted shares 56,582 55,771 56,146 55,683 Basic earnings per share $0.99 $0.37 $0.58 $0.42 Diluted earnings per share $0.98 $0.36 $0.57 $0.42
EX-12 6 Bausch & Lomb Incorporated Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges (Dollar Amounts In Millions) For Six Months Ending For the Year Ending June 27, 1998 December 27, 1997 Earnings before provision of income taxes and minority interests $ 71.0 $118.0 Fixed charges 52.9 57.9 Capitalized interest, net of current period amortization 0.1 0.3 Total earnings as adjusted $124.0 $176.2 Fixed charges: Interest (including interest expense and capitalized interest) $ 51.7 $ 56.1 Portion of rents representative of the interest factor 1.2 1.8 Total fixed charges $ 52.9 $ 57.9 Ratio of earnings to fixed charges 2.34 3.04 Excluding the effects of the restructuring charges, purchased- in-process research and development charges from the surgical acquisitions and the gain on sale of the skin care business in 1998, the ratio of earnings to fixed charges at June 27, 1998 would have been 2.29. Excluding the effects of the restructuring charges recorded in 1997, the ratio of earnings to fixed charges at December 27, 1997 would have been 4.28.
EX-27 7
5 6-MOS DEC-26-1998 JUN-27-1998 144278 3215 540006 28583 408602 1314891 1348614 675322 3551498 1384670 783550 0 0 24148 808999 3551498 1188128 1188128 574407 574407 571291 5392 51716 71000 27382 32036 0 0 0 32036 0.58 0.57 Income Before Taxes and Minority Interest
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