Bausch & Lomb 1999 Annual Report

“See the future” 

Bausch & Lomb 

1999 Annual Report

Revenue 

($ in millions) 

Earnings 

($ in millions) 

Comparable basis* 

Vision Care 

1,029.5 

971.2 

918.1 

97 98 99 98 99 

97 98 99 

Vision Care 

210.9 208.4 

200.5 

Contents 

Surgical 

384.7 

432.7 

Surgical 

43.0 

64.1 

Pharmaceuticals 

190.6 

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . .IFC 

Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .1 

Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 

Financial Statements and Notes . . . . . . . . . . . . . . . . .19 

Reports of Management, Audit Committee 

and Independent Accountants . . . . . . . . . . . . . . .44 

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . .46 

36.6 

241.6 

293.9 


97 98 99 98 99 

97 98 99 

* Comparable basis excludes restructuring charges, asset write-offs and other significant charges. 

49.2 

66.1

At a Glance 

Key Products 

Vision Care 

Surgical 


Prescription 

OTC 

ReNu: The ReNu line is the global market leader in the growing chemical disinfectant 

segment for soft contact lens care. ReNu MultiPlus solution was the first one-bottle 

multi-purpose solution for soft lenses to eliminate the need for a separate enzymatic 

cleaner. Other products include a companion rewetting drop for ReNu MultiPlus and 

preservative-free rewetting/lubricating drops designed for use with soft contact lenses. 

SofLens: A number of contact lens products are offered under the SofLens name. 

SofLens one day lenses are daily disposable lenses manufactured using a low-cost 

production process. SofLens66 toric lenses are high performance cast-molded lenses 

for people with astigmatism that compete in the planned replacement category. 

PureVision: Bausch & Lomb’s newest contact lens, which offers a high degree 

of oxygen permeability and is approved for seven- to 30-day extended wear, 

depending on approvals in specific markets. 

Boston: The Boston line of contact lenses and lens care products has a commanding 

lead in the global rigid gas permeable (RGP) category. Recent introductions include 

Boston EO, an RGP lens with high oxygen permeability and excellent lathing 

properties, and Boston Enhanced Original Formula Conditioning Solution, a 

solution with improved RGP lens wetting performance. 

Technolas 217: Narrow-beam advanced scanning excimer laser, capable of offering 

integrated microkeratome and excimer laser procedures. The Technolas 217 laser has 

recently received FDA approval in the U.S. and is the leading laser outside the U.S. 

Hansatome: Advanced, pivotal action microkeratome for superior positioned hinge. 

The Hansatome is the best-selling microkeratome on the market today. 

Orbscan II: Corneal and anterior segment topography system that simultaneously 

measures the curvature and elevation of both surfaces of the cornea, as well 

as the anterior lens and iris. 

Millennium: Advanced microsurgical system with both anterior segment 

and posterior segment functionality. The Millennium system's modular 

design allows surgeons to keep pace with innovations in ophthalmic surgery. 

Intraocular Lenses (IOLs) and Delivery Systems: One- and three-piece minimally 

invasive, small incision IOLs, including the Soflex line, as well as the Passport and 

MPORT delivery devices for cataract surgery. 

AMVISC/AMVISC Plus: Viscoelastic products indicated for both anterior and 

posterior segment procedures, including extraction of cataracts, insertion of IOLs, 

corneal transplantation surgery, glaucoma filtering surgery and surgical procedures 

to reattach the retina. 

Vitrasert: Posterior chamber implant which offers sustained therapeutic drug delivery 

for several months. The product contains the drug ganciclovir and is used to treat 

CMV retinitis. 

Lotemax: An ophthalmic steroid designed for effective treatment of inflammation 

with an excellent safety profile. Active ingredient is loteprednol etabonate 0.5%. 

Alrex: Ophthalmic suspension containing a lower concentration of loteprednol 

etabonate (0.2%), designed specifically to relieve signs and symptoms of seasonal 

allergic conjunctivitis. 

Ocuvite: Number one recommended vitamin/mineral supplement brand by eye care 

professionals. Contains certain antioxidants that may assist in maintaining the health 

of the eye. Product offerings include Ocuvite and Ocuvite Extra tablets and Ocuvite 

Lutein capsules, which contain the carotenoid lutein, a highly protective antioxidant 

found in the crystalline lens and retinal pigment of the eye. 

New Product Pipeline* 

*Note: New Product Pipeline products have not yet received regulatory approvals for marketing in the U.S. and/or are currently under development. 

Prescription 

OTC 

New Planned Replacement Lens: New contact lens manufactured using 

the same low-cost process as our one-day lenses. The lens is expected to 

compete in the two-week planned replacement market in the U.S. and the 

monthly market overseas. 

Rapid Disinfecting Solution: Multi-purpose regimen designed to reduce 

disinfecting time for soft contact lenses. 

Next Generation One Bottle RGP Care Regimen: New RGP lens care solution 

designed to provide improved cleaning. 

Continuous Wear Program: Various next generation continuous wear contact 

lenses and lens care products. 

New Lens Care Solution: Multi-purpose regimen designed to reduce soft 

contact lens handling and improve convenience. 

Aberrometer Wavefront Technology: Diagnostic technology that provides 

a wavefront analysis of the entire optical system in addition to providing a 

complete and accurate refraction of the eye. 

Customized Ablation: Software technology designed to provide customized 

refractive surgery based upon integrated diagnostics. 

Surodex: Controlled drug delivery system designed to treat inflammation 

following cataract surgery. 

Catarex: Minimally invasive new surgical technology for removal of cataracts. 

MPORT SI Inserter: Next generation microincision insertion device for 

foldable IOLs. 

Hydrophilic Acrylic IOL: Advanced minimally invasive acrylic IOL and inserter. 

Phakic IOL (next generation): Comprehensive platform technology designed 

to allow for additive as well as subtractive refractive correction. 

Perfluorocarbon II: Intraocular gas used to flatten the retina while healing 

occurs following surgical correction of detached retina. 

Loteprednol Etabonate Combination: Loteprednol etabonate/anti-infective 

combination, designed to treat inflammatory and infectious conditions of 

the eye. 

Next Generation Anti-Infective: Iodine-based anti-infective, designed as 

a “universal anti-infective” to treat all causes of ocular infections (bacterial, 

viral and fungal). 

Vitreous Implant Technology: System designed to deliver pharmaceutical 

products directly to the back of the eye. The potential exists to treat numerous 

retinal diseases. 

Long-Lasting Dry Eye Drop: Designed to relieve dry eye symptoms longer 

than existing monograph products. 

Next Generation Allergy Drop: Designed to offer superior symptom relief 

for allergic conjunctivitis and to relieve dryness.

Contact 

Lenses 62% 

Global Vision Care Market 

Growth Rates 

Total 5 – 8% 

Contact Lenses 9 – 12% 

Lens Care (1) – 1% 

Global Market $4.7 Billion 

Lens Care 38% 

Global Ophthalmic Pharmaceuticals Market 

Anti-Infective 

21% 

Global Ophthalmic Surgery Market 

Vitreoretinal 12% 

Refractive 25% 

Other 8% 

Anti-Inflammatory 9% 

Source: Company Estimates 

Growth Rates 

Total 11 – 14% 

Cataract 3 – 5% 

Refractive 35 – 40% 

Vitreoretinal 5% 


Back of the Eye 1% 

Allergy 17% 

Growth Rates 

Total 5 – 8% 

Glaucoma 5 – 7% 

Allergy 3 – 5% 

Anti-Infective (2) – 0% 

Anti-Inflammatory 0 – 2% 

Back of the Eye 100+% 


Cataract 63% 

Glaucoma 44% 

Financial Highlights 

For The Years Ended December 27, 1997, 

December 26, 1998 and December 25, 1999 

Dollar Amounts In Millions – Except Per Share Data 

1997 1998 1999 

Business Results 

Net sales $1,108.7 $1,597.5 $1,756.1 10% 

Segment earnings 247.5 300.6 330.7 10% 

Operating earnings – reported 162.9 169.5 214.2 26% 

Operating earnings – comparable basis † 202.0 248.0 267.7 8% 

Income from continuing operations 62.0 55.6 102.7 85% 

Net income 49.4 25.2 444.8 * 

Per share: 

Continuing operations – diluted 1.12 0.99 1.75 77% 

Net income – diluted 0.89 0.45 7.59 * 

Dividends declared 1.04 1.04 1.04 – 

Shareholders’ equity at year end 14.82 14.93 21.48 44% 

Capital expenditures 126.1 201.5 155.9 

Working capital 202.9 774.4 1,190.7 

Diluted Common shares outstanding (000s) 55,654 56,367 58,639 

Return on average shareholders’ equity 5.9% 3.1% 43.3% 

Return on invested capital 5.0% 3.8% 21.7% 

High/low stock price $47 7 ⁄8 – $32 1 ⁄2 $59 3 ⁄8 – $37 3 ⁄4 $83 3 ⁄8 – $52 5 ⁄8 

† Represents company’s results excluding amounts related to restructuring charges and asset write-offs and other significant charges. 

* Represents an increase in excess of 100%. 

The Future… something that 

everyone reaches at the rate of sixty 

minutes an hour… sixty seconds 

a minute… it’s here, it’s now. 

At Bausch & Lomb, we make 

every second count. 

Percentage Change 

from 1998

Dear Fellow Shareholders: 

We entered the year 2000 as a very different company than the one that 

began 1999. During the past year we successfully completed our strategic 

realignment and firmly established our future as a technology-based 

health care company for the eye. 

We did this by divesting our non-strategic businesses and by augmenting 

our core business portfolio through acquisitions – principally in the surgical 

segment. We evolved organizationally and streamlined our administrative 

functions to move from a diversified holding company to a more 

integrated operating company that can leverage our unique skills and 

combined capabilities. As a result, millions of dollars in savings are being 

reinvested in new products and providing improvements in profitability. 

The future is now. 

“We’re creating it.” 

William M. Carpenter 

Chairman and Chief 

Executive Officer 

“We’re focused on it.” 

Carl E. Sassano 

President and Chief 

Operating Officer

Advanced Products 

for Contact Lens Wear 

Over the last three years, 

Bausch & Lomb’s full 

line of products for the 

contact lens wearer has 

been transformed with the 

introduction of innovative 

new products. Perhaps 

the most revolutionary is 

PureVision, a breakthrough 

contact lens designed to 

be worn continuously from 

seven days up to a month 

at a time, depending on 

regulatory approvals. Its 

patented material offers an 

optimal balance of attributes 

for healthy and comfortable 

extended wear. New products 

such as PureVision 

lenses have reestablished 

Bausch & Lomb as the technology 

leader in vision care. 

During 1999, we dramatically ramped up our investment in research 

and development (R&D), with spending increasing 27% to 5.6% of net 

sales. Our focus on technology generated accelerated revenue growth, with 

our ongoing businesses posting a healthy 10% gain over 1998. Products 

introduced over the past 24 months drove this expansion, accounting for 

more than 20% of total revenues. 

Our emphasis on improving the top line through higher margin eye 

care products, combined with aggressive product and administrative cost 

reduction programs, has led to a renewed focus on profitable growth. For 

the year, net earnings and earnings per share from continuing operations 

before one-time events increased 31% and 27%, respectively. 

The divestiture of 

non-strategic businesses 

also significantly strengthened 

the financial 

health of the company. The roughly $1 billion in proceeds 

we received reduced our debt to capital ratio to 45.3% (from 

63.5% in 1998) and significantly enhanced our ability to 

fund future acquisition opportunities to accelerate further 

growth and add shareholder value. We are using a portion of 

the proceeds to buy back up to five million shares of stock 

because we believe it's a great investment that will improve 

the return to our shareholders, a goal of any EVA company. 

As our financial strength and performance have improved, 

so too has our stock price. Over the past two years, the value 

of Bausch & Lomb shares has increased at a compound rate 

“Our goals are in focus” 

See the future 2 

Bausch & Lomb

Increased R&D 

Driving Revenue 

Growth 

Percent of consolidated sales 

New & innovative products will continue to drive growth. 

Research & 

Development 

Expense 

4.5 4.8 5.6 

97 98 99 

See the future 3 Bausch & Lomb 

Sales from 

Products Introduced 

Since 1997 

2.7 

11.4 

20.6 

97 98 99 

Timing: 

Delivering 

new technologies 

We’re in a race against time. 

Time to bring new and better 

products to market. To win 

that race we’ve stepped up 

our efforts in research and 

development, investing 

more, and investing smarter. 

Our efforts are paying off 

in innovative new products 

that are propelling our 

growth. In our vision care 

business alone, almost 20% 

of 1999 revenues came from 

products introduced in just 

the past two years. We are 

committed to investing 

more each year to develop 

new technologies, because 

time doesn’t stand still.

of 31%, outstripping the gains in both the S&P 500 and the S&P 

Health Care Composite indices. 

So, what does the future hold? Only time will tell, but certainly our 

vision of being Number One in the Eyes of the World will drive and 

provide focus to all that we do. 

We are the global leader in products for the contact lens wearer – 

and intend to stay that way! We'll do this by continuing to introduce 

technologically differentiated products and by further expanding our 

geographic reach. Over the past few years, we have transformed our 

vision care offerings through the introduction of four new products: 

SofLens one day contact lenses for daily wear; SofLens66 toric, our technologically 

advanced twoweek 

disposable contact 

lens for people with 

astigmatism; PureVision, our 

breakthrough contact lens designed for continuous wear and 

approved for seven-day wear in the U.S. and 30-day wear in 

Europe; and ReNu MultiPlus, the first truly all-in-one lens 

care product. We will introduce a new two-week conventional 

spherical contact lens in the first half of 2000, 

produced using the same low-cost manufacturing 

process as our one-day lens. Based on the 

successful expansion of these products, we have moved to 

reduce cost further and to consolidate our contact lens 

manufacturing into “centers of excellence.” Together, we 

expect these factors to allow us to accelerate revenue growth, 

increase market share and improve the profitability of our 

vision care business in 2000 and beyond. 

“Our view is precise” 

Leading the Way in 

Refractive Surgery Products 

Among Bausch & Lomb’s 

comprehensive offerings 

for refractive surgery is 

the Technolas 217, pictured 

above, an advanced small 

beam, spot-scanning laser. 

Already the technology 

leader outside the U.S., it 

recently received regulatory 

clearance for the U.S. market. 

At center is a sample 

corneal map generated 

by the Orbscan II corneal 

topographer, the only 

diagnostic tool of its 

kind that maps both the 

front and back surfaces 

of the cornea, providing 

invaluable information 

to the refractive surgeon. 

See the future 4 Bausch & Lomb

20/10 vision can be realized sooner than you think. 

Estimated Time Table for Customized Ablation System 

2000 

Clinical Studies 

Outside the U.S. 

Investigational Device 

Exemption Filing with FDA 

and U.S. Clinical Trials 


2001 

System Marketed Outside the U.S. 

Pre-Market Approval 

Filing with FDA 

System Marketed 

in the U.S. 

Target: 

20/10 vision 

Personalized visual 

perfection. Beyond 20/20 

to optimal visual acuity. To 

get there, Bausch & Lomb 

researchers are harnessing 

the power of our advanced 

diagnostic technology to 

yield a customized laser 

prescription that compensates 

for the individual 

imperfections of each 

person’s eye. The result: 

custom-tailored vision that 

will set a new standard in 

refractive surgery. Never 

satisfied, Bausch & Lomb 

researchers will continue 

to reinvent what is possible 

through vision correction.

Global Leadership 

People around the world 

entrust to Bausch & Lomb 

their most precious sense – 

the sense of sight. To be 

worthy of that trust, we 

constantly strive to find 

a better way in all that we 

do. By offering the most 

comprehensive and innovative 

line of eye care products, 

and through our partnerships 

with eye care professionals, 

our goal is to enhance the 

visual performance of people 

of all ages. Said another 

way, our vision is to be 

Number One in the Eyes 

of the World. 

In the surgical business, we continue to be excited by the rapid growth 

of refractive surgery. We are already the global leader in this area, offering 

the most advanced technology covering all aspects of LASIK, the most 

common refractive procedure. We are currently conducting clinical trials 

in Europe to integrate our unique diagnostic and refractive technologies. 

This will enable surgeons to determine an individualized customized 

ablative pattern for treating each patient, and thus allow patients to 

attain vision better than 20/20 – in essence, perfect vision. In turn, 

it has the potential to provide Bausch & Lomb with an annuity stream of 

revenues to augment our equipment sales and capitalize on the projected 

growth in global refractive surgery procedures. We will also maintain a 

strong presence in cataract surgery, the most common ophthalmic 

surgical procedure today, where 

“Number one in 

we expect to introduce technology 

that will allow for less invasive surgery and new 

intraocular lens offerings over the next few years. 

In our pharmaceuticals business, our expanded R&D 

efforts are yielding the breakthrough technology that we 

believe can provide future breakout potential for Bausch & 

Lomb. In 2000, we will be in Phase III clinical trials for an 

extension to the Lotemax line with a product designed to 

treat eye inflammation and infection, with an expected 

launch in 2001. However, our most exciting opportunity is 

with a drug delivery technology to treat sight-threatening 



the eyes of the world”

The tiny Vitrasert implant pictured here uses an innovative 

drug delivery technology to treat CMV retinitis, 

a complication of AIDS. Clinical trials are planned 

to begin this year to apply this proven technology to 

delivering drugs to treat other forms of retinal disease. 



Vision: 

Treating 

global eye disease 

Some of the most common 

causes of blindness are also 

the most difficult to treat. 

Chronic diseases of the 

back of the eye, such as 

age-related macular degeneration, 

diabetic macular 

edema and posterior uveitis, 

affect millions of people 

worldwide and present few 

treatment options, in large 

part because of the difficulty 

in getting drug therapies 

to that part of the eye. 

Bausch & Lomb is working 

with a partner on a tiny 

implanted drug delivery 

We are working to battle the causes of sight-threatening diseases. 

system that delivers medication 

in slow doses for 

months or years. We expect 

to begin clinical trials this 

year on products combining 

this innovative technology 

with well-understood drugs 

to treat sight-threatening 

conditions. Our success will 

mean more than a potential 

blockbuster product. It will 

mean we can preserve the 

joy of sight for millions of 

people around the world.

diseases like age-related macular degeneration, diabetic macular edema 

and posterior uveitis that attack the retina and optic nerve or “back of 

the eye.” The results from our clinical trials so far are very promising, and 

we expect to move into Phase III clinicals during 2000 and be on the 

market potentially as early as 2003. 

While we continue to develop the technology, operational capabilities 

and financial strength necessary to achieve our ambitions, it is the tenacity 

and dedication of our people that will ultimately power our success. We 

are confident that the future of this company is bright because of the 

dedication of our past and present employees. We are grateful to these 

men and women for their efforts, which not only have made Bausch & 

Lomb the company it is today, but the company it 

will be in this new millennium. 

They have allowed us to build 

our strong technological leadership and global presence, driven our 

efforts in R&D and provided unique opportunities to integrate and 

leverage our broad product portfolio. We have the people, the products 

and the capabilities to continue to lead this category of healthcare and 

bring the joy of sight to millions of people in the years ahead. 

“We are meeting 

that challenge” 



Chairman and Chief Executive Officer

Financial Review 


This financial review, which should be read in conjunction with 

the accompanying financial statements, contains management’s 

discussion and analysis of the company’s results of operations, 

liquidity and 2000 outlook. References within this financial 

review to earnings per share refer to diluted earnings per share. 

Bausch & Lomb Incorporated (the “company”) reported net 

income of $445 or $7.59 per share for the year ended December 

25, 1999, compared to 1998 net income of $25 or $0.45 per 

share. During 1999, the company sold its sunglass, hearing aid 

and biomedical businesses, which generated an aggregate aftertax 

gain of $308 or $5.26 per share. Income from continuing 

operations was $103 or $1.75 per share in 1999 compared to $56 

or $0.99 per share in 1998. Restructuring charges and asset 

write-offs recorded in the fourth quarter of 1999, partially offset 

by reversals of restructuring charges recorded in prior periods, 

reduced 1999 income from continuing operations by $34 or 

$0.58 per share after taxes. Purchase accounting adjustments 

related to the surgical acquisitions, as well as restructuring charges 

and asset write-offs, reduced 1998 income from continuing operations 

by $49 or $0.87 per share after taxes. 

In 1997, net income and income from continuing operations 

were $49 or $0.89 per share and $62 or $1.12 per share, 

respectively. Results were negatively impacted by restructuring 

charges and asset write-offs of $25 or $0.45 per share after taxes 

and a litigation charge of $13 or $0.24 per share after taxes. 


Revenues And Earnings 

By Business Segment 

The company split the pharmaceuticals/surgical segment into 

two separate segments in 1999 to reflect changes in the manner 

in which financial information is viewed by management for 

decision-making purposes. The company now reports its operating 

results in three segments: vision care, pharmaceuticals and 

surgical. The vision care segment includes contact lenses, lens care 

products and vision accessories. The pharmaceuticals segment 

includes prescription ophthalmic drugs and over-the-counter 

(OTC) medications. The surgical segment is comprised of 

cataract, refractive and other ophthalmic surgery products. Prior 

year results have been reclassified to reflect these new segment 

classifications. 

The following table summarizes continuing sales and earnings 

by segment and presents total company operating earnings. 

Throughout the remainder of this financial review, the term 

“other significant charges” will be used to refer to purchased 

in-process research and development and other required 

purchase accounting adjustments recorded in 1998 associated 

with the surgical acquisitions. 

1999 1998 1997 

As % of Total As % of Total As % of Total 

Reported Net Sales Reported Net Sales Reported Net Sales 

Net Sales 

Vision Care $ 1,029.5 58% $ 971.2 61% $ 918.1 83% 

Pharmaceuticals 293.9 17% 241.6 15% 190.6 17% 

Surgical 432.7 25% 384.7 24% .– – 

$ 1,756.1 $ 1,597.5 $ 1,108.7 

% of Segment % of Segment % of Segment 

Earnings Earnings Earnings 

Operating Earnings 

Vision Care $ 200.5 61% $ 208.4 70% $ 210.9 85% 

Pharmaceuticals 66.1 20% 49.2 16% 36.6 15% 

Surgical 64.1 19% 43.0 14% .– – 

$ 330.7 $ 300.6 $ 247.5 

Corporate administration 

Restructuring charges and 

(63.0) (52.6) (45.5) 

asset write-offs (53.5) (5.4) (39.1) 

Other significant charges .– (73.1) .– 

$ 214.2 $ 169.5 $ 162.9

Net Sales Net sales in 1999 increased $159 or 10% from 1998 

with virtually no impact from foreign currency exchange rate 

changes. All segments experienced favorable year-over-year 

growth with double-digit gains in both the pharmaceuticals and 

surgical businesses. In 1998, net sales increased $489 or 44% 

versus 1997 and improved 47% on a constant dollar basis (that 

is, excluding the effect of foreign currency exchange rate changes) 

reflecting the impact of acquisitions. Excluding these incremental 

revenues, total company revenues increased $70 or 6% (8% in 

constant dollars). 

Operating Earnings Operating earnings are comprised of 

segment earnings less corporate administration expenses, restructuring 

and asset write-offs and other significant charges. In 1999, 

segment earnings increased $30 or 10% versus the prior year 

reflecting double-digit increases in the pharmaceuticals and 

surgical businesses offset by a decrease in vision care. Segment 

earnings in 1998 increased $53 or 21% versus 1997. Incremental 

results from acquired pharmaceuticals and surgical businesses 

drove the increase that otherwise would have been flat year-overyear. 

Corporate administration expense in 1999 of $63 or 3.6% 

of net sales increased over the $53 or 3.3% of net sales in 1998, 

driven primarily by costs associated with year 2000 and financial 

systems upgrades. Corporate administration expense in 1998 

improved as a percentage of sales versus the 4.1% in 1997. This 

improvement reflected effects of expense reduction resulting 

from restructuring programs and a higher sales base due to the 

surgical acquisitions. The other significant charges in 1998 

amounted to $41 for purchased in-process research and development 

and $32 for other required purchase accounting 

adjustments. Restructuring charges and asset write-offs are 

discussed below. 

Unless otherwise noted, discussion in the remainder of this 

financial review concerning segment results, operating costs and 

expenses and geographic region results exclude the restructuring 

charges and asset write-offs, corporate administration expense 

and other significant charges. 

Restructuring Charges and 

Asset Write-offs 

In 1999 and 1997, the company’s board of directors approved 

plans to restructure certain of the company’s business segments and 

corporate administrative functions. These plans are described more 

fully in Note 5 – Restructuring Charges and Asset Write-offs, and represent 

the company’s programs to enhance its competitive position. 

1999 Program 

In December 1999, management announced that in order to 

increase its competitiveness and performance, the company 

would exit certain manufacturing platforms in the contact lens 


business and consolidate others into focused facilities, as well as 

reduce certain global administrative costs. As a result, a pre-tax 

amount of $57 was recorded during the fourth quarter for 

restructuring and asset write-offs. The after-tax impact of this 

charge was $36 or $0.62 per share. Major actions in this restructuring 

plan include: 

Project 

Vision Care 

Exit certain European 

Start Date 

Anticipated 

Completion Date 

manufacturing platforms 

Exit certain U.S. 

Q4/99 Q2/00 

manufacturing platforms 

Eliminate internal 

Q4/99 Q4/00 

infrastructure costs 

Other/Administrative 

Eliminate internal 

Q4/99 Q2/00 

infrastructure costs Q4/99 Q4/00 

The above actions are expected to result in cash outflows of 

approximately $31. The majority of the outflows are expected to 

occur in the second half of 2000. The company anticipates that 

its current cash position as well as the cash provided through 

operations will provide adequate funding for these actions. 

This program is expected to yield pre-tax cost savings of 

approximately $16 in 2000 and $30 annually beginning in 2001. 

These savings will be realized primarily through reduced cost of 

products sold and selling, administrative and general expenses. 

A portion of these savings will be reinvested into research and 

development (R&D). 

The company is considering additional actions to rationalize 

its contact lens product line and manufacturing processes. These 

actions, which may include the discontinuance of certain product 

lines, could result in additional pre-tax charges of up to $15 

during 2000. 

1997 Program 

During 1998 and 1997, the company recorded cumulative pretax 

restructuring charges and asset write-offs of $46 pertaining to 

continuing businesses. The after-tax impact of these charges was 

$4 and $26 or $0.07 and $0.47 per share for the fiscal years 1998 

and 1997, respectively. 

During 1999, all actions under this program were completed 

and the unused reserve of $3 was reversed and included in the 

restructuring charges and asset write-offs line of the company’s 

statement of income. 

The goal of the 1997 restructuring program was to enhance 

the company’s competitive position and to reduce the annual 

impact of general and administrative, logistics and distribution

costs by streamlining functions and closing certain facilities. 

Actual cost savings were approximately $41, a portion of which 

has been reinvested in marketing and advertising to support new 

product launches. 

Vision Care Segment Results 

1999 Versus 1998 The vision care segment includes the contact 

lens, lens care and vision accessories businesses. Revenues in this 

segment were $1,029 in 1999, an increase of 6% over 1998, with 

a negligible impact from currency rate changes. Lenses comprised 

46% of sales and lens care and vision accessories together 

comprised the remaining 54%. 

Contact lens revenue grew 8%, driven by double-digit 

growth in planned replacement and disposable lenses (collectively, 

PRD), including SofLens one day, SofLens66 toric and 

PureVision. Outside the U.S., contact lens sales grew by 14%, 

driven by strong gains in sales of SofLens one day in Europe, as 

well as increased sales of Medalist in Japan. Contact lens sales 

were flat in the U.S., with modest growth in the company’s PRD 

lenses offset by an expected decline in sales of traditional lenses. 

Lens care and vision accessories revenues grew by 4% in 1999 with 

gains driven primarily by strong sales of the ReNu line, especially 

in Japan where ReNu multi-purpose solution was introduced. 

Earnings in this segment declined $8 or 4%. This decline 

was due primarily to increased selling, administrative and general 

expenses and unfavorable manufacturing variances caused by 

reduced production of older lines of PRD lenses. 

1998 Versus 1997 Revenues increased $53 or 6% driven by a 

9% improvement in contact lens sales combined with a 3% 

improvement in lens care and vision accessories revenues. On a 

constant dollar basis, segment revenues increased 8%. 

Contact lens revenue gains were driven by strong growth in 

PRD lenses including SofLens one day in Europe, where sales 

more than doubled from 1997, and Medalist in Japan. PRD 

sales in the U.S. grew modestly but were offset by declining sales 

of rigid gas permeable and traditional lenses. Revenues from 

lens care and vision accessories products were up 5% in constant 

dollars, driven primarily by strong results in Europe. Segment 

earnings declined $2 or 1%, and operating margins declined 

to 21% in 1998 from 23% in 1997, primarily the result of 

currency changes. 

Pharmaceuticals Segment Results 

1999 Versus 1998 The pharmaceuticals segment includes 

prescription ophthalmic drugs and OTC medications. Segment 

revenues increased $52 or 22% with a negligible impact from 

currency. 


In the U.S., pharmaceuticals revenues increased 37%. 

Contributing to these results was a significant increase in sales 

of generic otic products, which benefited from a competitor’s 

exit from the market in late 1998; increased revenues from the 

company’s line of proprietary ophthalmic anti-inflammatory 

products, Lotemax and Alrex, which continued to gain market 

share throughout 1999; strong results for generic desmopressin, 

the first generic prescription nasal spray to be approved by the 

FDA; and an increase in revenues in the OTC business due in 

part to higher sales of Opcon-A. The U.S. growth was somewhat 

mitigated by flat results in Europe, reflecting lower OTC sales 

and negative currency impacts which affected the company’s 

Dr. Mann Pharma subsidiary in Germany. 

Segment earnings increased 35% from 1998, due in part to 

favorable pricing opportunities in the otics line. A substantial 

portion of the incremental margin realized from increased otic 

sales was reinvested in R&D, which increased by $14 or 65% 

and represented 12% of 1999 sales versus 9% in 1998. 

1998 Versus 1997 Segment revenues increased $51 or 27% 

reflecting the additions of the Chiron Vision and Storz pharmaceuticals 

product lines as well as the pharmaceuticals product 

lines of Dr. Winzer Pharma in Germany (the acquired product 

lines). Excluding the impact of the acquired product lines, 

pharmaceuticals revenues increased 9%. Currency rate changes 

had a negligible impact on segment revenues. 

In the U.S., pharmaceuticals revenues increased 29% due to 

the acquired product lines, the introductions of Lotemax and 

Alrex, increased revenues from trimethoprim, the generic 

equivalent to Polytrim, and increased generic otic sales. Also 

contributing to this increase was the OTC business, which benefited 

from strong sales of Opcon-A. Competitive pressures, 

including price declines on certain generic products, partially 

offset this sales growth. Pharmaceuticals revenues outside the 

U.S. improved 24% over the prior year, reflecting the acquired 

product lines, new product introductions and more stable market 

conditions in Germany than had been experienced in 1997. 

Segment earnings increased 34% over 1997, primarily 

reflecting the impact of the acquired product lines. Price and 

volume increases for many U.S. generic products were offset 

by unfavorable manufacturing variances and higher allowances 

associated with the competitive nature of the generic industry, 

as well as increased spending for marketing, advertising and 

R&D. R&D increased to 9% of sales from 7% of sales in 1997, 

reflecting additional spending to support development of 

proprietary products.

Surgical Segment Results 

1999 Versus 1998 The surgical segment includes products used 

for cataract, refractive and retinal surgery. Segment revenues were 

$433 which represented an increase of $48 or 12% over 1998, 

and an increase of 14% in constant dollars. 

The increase in revenues in all regions was driven primarily 

by sales of products for refractive surgery, including Hansatome 

microkeratomes and disposable blades, diagnostic technologies 

and lasers. This success was aided by the acquisition of Hansa 

Research and Development, Inc. in the first quarter of 1999, 

which improved the company’s ability to deliver microkeratomes 

and blades to the market. Also contributing to the segment’s 

success in the refractive market has been the positive response 

received regarding the company’s Orbscan diagnostic technology 

which was obtained through the 1999 acquisition of Orbtek, Inc. 

Segment earnings increased $21 or 49% due to a reduction 

in selling, administrative and general expenses as a percentage of 

sales as a result of the successful integration of the two surgical 

businesses the company acquired at the beginning of 1998. 

1998 Versus 1997 In the U.S., surgical revenues were $231 and 

represented 60% of total segment sales. Operations outside the 

U.S. accounted for $154 or 40% of total segment sales. Total 1998 

segment earnings were $43. All sales and earnings of this segment 

related to the 1998 acquisitions and were incremental to 1997. 

Operating Costs And Expenses 

The ratio of cost of products sold to sales for continuing businesses 

was 40.2% in 1999, versus 39.4% and 36.1% for the years ended 

Revenues And Earnings By Geographic Region 

A summary of sales and earnings from continuing businesses by geographic region follows. 


1998 and 1997, respectively. Results in 1999 reflected a decrease 

in vision care margins due to unfavorable manufacturing 

variances resulting from lower production of certain contact 

lenses and higher costs in the European distribution center. 

Offsetting these declines were gains in the pharmaceuticals 

segment. The unfavorable trend in 1998 was primarily the result 

of the addition of the surgical businesses, which generated lower 

margins than other continuing segments. Also contributing to 

this result were lower vision care margins due to product mix and 

lower pharmaceutical margins, which reflected lower selling 

prices for generic products. 

Selling, administrative and general expenses, including 

corporate administration, were 39.0% of sales in 1999 compared 

to 40.2% in 1998 and 41.2% in 1997. The year-over-year 

favorable ratio was driven by lower marketing expenditures in the 

pharmaceuticals business, particularly for OTC products, and 

benefits from the integration of the surgical business. The 1998 

favorable ratio reflected improvements resulting from 

company-wide system upgrades, lower marketing and advertising 

costs and cost savings from restructuring programs offset by 

incremental expenses associated with the integration of Chiron 

Vision and Storz. 

R&D expenses totaled $98 in 1999, an increase of $21 or 

27% over 1998. In 1997, these costs were $50. This represented 

5.6% of sales in 1999 versus 4.8% and 4.5% in 1998 and 1997, 

respectively. Overall, the three-year trend demonstrates the 

company’s continued commitment to accelerate the R&D 

spending needed to support its goal of consistently bringing new 

products to market. 

1999 1998 1997 

As % of Total As % of Total As % of Total 

Reported Net Sales Reported Net Sales Reported Net Sales 

Net Sales 

U.S. $ 929.5 53% $ 841.9 53% $ 564.0 51% 

Non-U.S. 826.6 47% 755.6 47% 544.7 49% 

$ 1,756.1 $ 1,597.5 $ 1,108.7 

% of Operating % of Operating % of Operating 

Earnings Earnings Earnings 

Operating Earnings 

U.S. $ 139.7 52% $ 122.7 49% $ 111.1 55% 

Non-U.S. 128.0 48% 125.3 51% 90.9 45% 

$ 267.7 $ 248.0 $ 202.0

1999 Versus 1998 Sales in markets outside the U.S. increased 

9% over the prior year and represented 47% of total revenues in 

1999 and 1998 and 49% in 1997. Increased revenues for vision 

care products, driven by exceptional results for PRD lenses, and 

favorable surgical results, more than offset flat sales in pharmaceuticals. 

Currency exchange rates had a minimal impact on 

consolidated non-U.S. sales. European revenues advanced 3%, 

and 8% in constant dollars, due mainly to strong results of PRD 

lenses. Sales in the Asia-Pacific region increased 18% over the 

prior year, and advanced 8% in constant dollars, due in large part 

to the growth of PRD lenses and lens care products throughout 

most of the region. Revenues in the Canada and Latin America 

region increased 20% with improved surgical sales in Canada 

partially offset by currency impacts in Latin America. 

U.S. sales, which represented 53% of total consolidated 

revenues, increased 10% from 1998. U.S. sales benefited from 

strong double-digit growth in pharmaceutical products, led 

by the incremental impact from generic otic products and the 

proprietary products Lotemax and Alrex, as well as exceptional 

growth in sales of products for refractive surgery. 

In 1999, operating earnings in markets outside the U.S. 

increased 2% from 1998, and represented 48% of total operating 

earnings, versus 51% and 45% in 1998 and 1997, respectively. 

Earnings were led by the Asia-Pacific region where Medalist 

contact lenses and ReNu multi-purpose solution performed well, 

aided by favorability in foreign currency. Earnings in the 

European region declined overall versus 1998 due to the impact 

of currency. In the U.S., 1999 operating earnings increased 14% 

versus the prior year. Margin improvements in the pharmaceuticals 

and surgical segments combined to offset higher R&D 

and administrative expenditures. 

1998 Versus 1997 Sales outside the U.S. increased 39% in 1998 

over 1997. Incremental sales from the acquired surgical businesses 

and increased revenues for vision care products, primarily 

contact lenses, drove the improvement. European revenues 

advanced significantly from the prior year led by incremental 

pharmaceuticals and surgical sales and growth in vision care sales. 

Sales in the Asia-Pacific region increased 15%. On a constant 

dollar basis, sales in the region advanced 21% due in large part to 

incremental surgical sales and to strong growth of PRD lenses 

throughout most of the region. In the Canada and Latin America 

region, sales increased 24% driven by incremental surgical sales 

and higher sales of vision care products. 

U.S. revenues in 1998 increased 49% from the prior year due 

primarily to incremental surgical sales. Vision care sales saw yearover-year 

improvement led by growth in PRD lenses, rigid gaspermeable 

(RGP) solutions and the launch of ReNu MultiPlus. 

Operating earnings in markets outside the U.S. increased 

38% from 1997. Incremental surgical results and the Dr. Winzer 

acquisition in Germany drove the increase. 


In the U.S., 1998 operating earnings increased 10%. These 

results reflected improvements in the vision care segment offset 

by higher R&D and administrative expenses as well as incremental 

amortization expense associated with recent acquisitions. 

Administrative expenses increased primarily due to initial costs 

associated with year 2000 and financial systems projects. 

Non-Operating Income And Expense 

Other Income And Expense Interest and investment income 

was $46 in 1999, $43 in 1998 and $39 in 1997. The increase in 

1999 over 1998 was due mainly to higher cash balances because 

of the divestitures, and higher interest rates. The increase in 1998 

over 1997 was primarily attributable to a gain on the sale of a 

long-term note associated with a 1996 divestiture. 

Interest expense was $88 in 1999, $99 in 1998 and $55 in 

1997. The decrease in 1999 from 1998 was mostly due to 1999 

divestitures, which yielded in excess of $1 billion in cash, some of 

which was used to significantly reduce short-term debt. In 1998, 

debt increased significantly due to the surgical acquisitions, thus 

increasing interest expense compared to 1997. 

The company’s net gain from foreign currency transactions 

has not varied materially during the three-year period ending in 

1999 due in part to the company’s risk management strategy. 

The company does not speculate in foreign currency. 

It may, however, selectively execute foreign currency transactions 

to protect the translated earnings and cash flows of certain foreign 

units. Such foreign currency transactions may not be accorded 

hedge accounting treatment under U.S. accounting rules. In 

addition, the company hedges identified transaction exposures 

on an after-tax basis to minimize the impact of exchange rate 

movements on operating results and selectively hedges exposures 

arising in countries with hyperinflationary economies. 

Other income of $7 in 1999 resulted from the liquidation of 

an investment in preferred securities associated with a 1995 

divestiture. In 1997, a pre-tax charge of $21 resulted from a 

legal settlement. 

Income Taxes The company’s effective tax rate for continuing 

operations was 36.0% in 1999 as compared to 35.2% in 1998 

and 38.1% in 1997. The impact of charges for litigation, 

acquired in-process R&D, restructuring and asset write-offs are 

reflected in the appropriate years. Excluding these items, the 

ongoing tax rates were 36.0%, 36.2% and 37.5% for 1999, 

1998 and 1997 respectively. 

When calculating income tax expense, the company recognizes 

valuation allowances for tax loss and credit carryforwards, 

which may not be realized by utilizing a “more likely than not” 

approach. This is more fully described in Note 9 – Provision for 

Income Taxes.

Minority Interest Minority interest was $16, $22 and $20 

for 1999, 1998 and 1997, respectively. The reduction in 1999 

from the prior two years primarily reflects the impact from the 

restructuring of a limited partnership as described in Note 13 – 

Minority Interest. 

Discontinued Operations Income from discontinued operations, 

net of income taxes, in 1999 was $34 compared to losses 

of $63 and $13, respectively, for the years ended 1998 and 1997. 

The loss in 1998 occurred primarily because of an $85 impairment 

charge associated with the former hearing aid business while the 

loss in 1997 was due mostly to restructuring charges and asset 

write-offs in the eyewear business. 

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. 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. 

Cash Flows From Operating Activities Cash provided by 

operating activities totaled $223 in 1999, an increase of $77 

from 1998. The increase was driven primarily by increased 

earnings from continuing businesses and lower net financing 

expenses due to the repayment of debt that occurred as a result of 

divestitures, partially offset by increases in accounts receivable. In 

1998, operating activities generated $146 in cash flow, a decrease 

of $69 from 1997. Increases in accounts receivable, interest on 

incremental debt associated with the surgical acquisitions and the 

settlement of litigation commenced in a prior year contributed to 

this result. 

Free cash flow for 1999 was $79, an increase of $153 from 

1998. The increase was primarily attributable to the operating 

factors cited above, as well as to a decrease in capital expenditures. 

Cash Flows From Investing Activities Cash provided by investing 

activities was $1,163 in 1999. Cash inflows from divestitures 

were $1,048 while an additional $300 was realized from the 

liquidation of an investment. Capital expenditures of $156 

primarily supported expanded contact lens manufacturing 

capacity and year 2000 and financial system improvements, while 

the acquisition of two companies within the surgical segment 

resulted in a cash outflow of $43. 

In 1998, cash used in investing activities was $797 as outflows 

of $719 and $202 for acquisitions and capital expenditures, 

respectively, were partially offset by divestiture proceeds of $135. 


Cash Flows From Financing Activities Cash used in financing 

activities during 1999 was $687 as the company reduced debt by 

nearly $450, and had a net outflow of $200 resulting from the 

restructuring of a limited partnership, as explained in Note 13 – 

Minority Interest. The board of directors authorized the repurchase 

of up to 250,000 Common shares in July 1998 and up 

to 5,000,000 additional Common shares in November 1999. 

The company has repurchased 630,548 shares through 

December 25, 1999 and expects the remaining 4,619,452 shares 

to be repurchased during 2000 using the cash generated from the 

1999 divestitures. 

In 1998, $593 was provided by financing activities. Net 

new borrowings totaling $605 were used primarily to support the 

surgical acquisitions. 

Financial Position The company’s total debt, consisting of shortand 

long-term borrowings, was $1,024 and $1,473 at the end of 

1999 and 1998, respectively. The repayment of debt was accomplished 

through use of a portion of divestiture proceeds. The ratio 

of total debt to capital stood at 45.3% and 63.5% at year-end 

1999 and 1998, respectively. Cash and cash equivalents totaled 

$827 in 1999 and $129 in 1998. 

Certain tranches of the company’s long-term debt contain 

options that allow holders to put the debt back to the company, 

or allow remarketing agents to call the debt from the holders and 

remarket the debt at a higher interest rate than the then current 

market rate. Based on current interest rate levels, the company 

expects the remarketing agreements to expire, thus allowing the 

company to retire each tranch at the earlier maturity date. The 

company does not believe that the potential exercising of these 

rights would materially impact its financial position. 

Access To Financial Markets During the second quarter of 

1999, the company restructured its revolving credit agreements 

and now maintains 364-day bilateral revolving credit agreements 

totaling $500. The interest rate under these agreements is based 

on LIBOR, or at the company’s option, such other rate as may be 

agreed upon by the company and the bank. No debt was outstanding 

under these agreements at December 25, 1999. In 

addition, the company maintains other lines of credit on which 

it may draw to meet its financing requirements. 

The company’s commercial paper is rated A-2 and P-2 by 

Standard & Poor’s and Moody’s Investors Service, respectively. Its 

long-term debt is rated BBB by Standard & Poor’s and Baa2 by 

Moody’s Investors Service. 

The company believes its strong cash position, existing 

credit facilities and access to financial markets provide adequate 

liquidity to meet obligations, fund capital expenditures and 

invest in potential growth opportunities.

Working Capital Working capital and the current ratio were 

$1,191 and 2.9, respectively, at year end 1999 and $774 and 2.0, 

respectively, at year end 1998. 

Dividends The dividend on Common stock, declared and paid 

quarterly, totaled $1.04 per share for each of the years ended 

1999, 1998 and 1997. 

Return On Equity And Capital Return on average shareholders’ 

equity was 43.3% in 1999, compared with 3.1% in 1998 and 

5.9% in 1997. The increase in 1999 was mainly due to the gains 

realized on the divestitures. The decrease in 1998 was primarily 

the result of an impairment charge in a now divested business and 

the purchased in-process R&D charge described below. 

Return on invested capital was 21.7% in 1999, 3.8% in 

1998 and 5.0% in 1997. The increase in 1999 was due primarily 

to the gain on divestitures and the debt repayments associated 

with the use of proceeds from the divestitures. The decrease in 

1998 was due primarily to the matters discussed above, as well as 

to the debt increase associated with the surgical acquisitions. 

Market Risk 

The company, as a result of its global operating and financing 

activities, is exposed to changes in interest rates and foreign 

currency exchange rates that may adversely affect its results of 

operations and financial position. In seeking to minimize the 

risks and/or costs associated with such activities, the company 

manages exposures to changes in interest rates and foreign 

currency exchange rates primarily through its use of derivatives. 

The company does not use financial instruments for trading or 

other speculative purposes, nor does it use leveraged financial 

instruments. 

The company primarily uses foreign currency forward 

contracts to hedge foreign currency transactions and equity 

investments in non-U.S. subsidiaries. For contracts outstanding 

at the end of 1999, foreign currencies purchased were primarily 

Singapore dollars, Hong Kong dollars and British pounds. The 

currencies sold were primarily the euro, the Japanese yen and the 

British pound. With respect to 1998, the outstanding contracts 

at year end required the purchase of primarily Irish pounds, 

Singapore dollars and Hong Kong dollars and the sale of German 

marks, Netherlands guilders and Singapore dollars. The magnitude 

and nature of such hedging activities are explained further 

in Note 14 – Financial Instruments. A sensitivity analysis to measure 

the potential impact that a change in foreign currency exchange 

rates would have, net of hedging activity, on the company’s net 

income indicates that, based on its year-end 1999 positions, if the 

U.S. dollar strengthened against all foreign currencies by 10%, 

the company’s earnings would have been reduced by approximately 

$2 after taxes. If the U.S. dollar weakened against all 


foreign currencies by 10% based on 1998 net exposures, the 

company’s earnings would have been reduced by approximately 

$1 after taxes. 

The company may enter into interest rate swap and cap 

agreements to effectively limit exposure to interest rate movements 

within the parameters of its interest rate hedging policy. This policy 

requires that interest rate exposure from floating-rate assets be 

offset by a substantially similar amount of floating-rate liabilities. 

Interest rate derivatives are used to readjust this natural hedge 

position when it becomes unbalanced beyond policy limits. Due 

mainly to the proceeds received from the 1999 divestitures, the 

company exceeded policy limits at December 25, 1999. For 

foreign currency-denominated borrowing and investing 

transactions, cross-currency interest rate swap contracts are used, 

which, in addition to exchanging cash flows derived from interest 

rates also exchange currencies at both inception and termination 

of the contract. A sensitivity analysis to measure the potential 

impact that a change in interest rates would have, net of hedging 

activity, on the company’s net income indicates that a one percentage 

point decrease in interest rates, which represents a greater 

than 10% change, would increase the company’s net financial 

expense by approximately $8, based on 1999 year-end positions. 

With respect to 1998 year-end positions, the sensitivity analysis 

indicates that an increase in interest rates of one percentage point 

would increase net interest expense by approximately $1. 

Counterparties to the financial instruments discussed above 

expose the company to credit risks to the extent of non-performance. 

The credit ratings of the counterparties, which consist of 

a diversified group of major financial institutions, are regularly 

monitored and thus credit loss arising from counterparty 

non-performance is not anticipated. 

Outlook 

In 2000, the company expects revenues to grow in the upper single 

digits, supported by its newer product offerings within its vision 

care segment and the expected continued strong growth in sales 

for products for refractive surgery. Operating earnings are 

expected to improve by approximately 20% or more, driven by 

savings from the restructuring programs announced in 

December 1999, as well as a sales mix shift to newer, higher 

margin products. These projections presume that foreign currency 

exchange rates remain fairly consistent with year end levels. 

Since the company operates globally, the business is subject to 

fluctuations in currencies which can have a material effect on 

sales and the results of operations outside the U.S. 

In the vision care segment, revenue growth is expected to be 

in the upper single digits with lens care growing slightly and 

contact lenses growing in the low double digits. The contact lens 

business should benefit from higher sales from new and innovative 

products including SofLens one day disposable lenses; SofLens66

toric, a two-week disposable lens to correct astigmatism; 

PureVision, an extended wear lens; and a new two-week conventional 

disposable lens which the company plans to introduce 

during the first half of 2000. The new two-week disposable lens 

will be manufactured using the same low-cost process that is 

used for its one-day disposable product and is expected to allow 

the company to compete more effectively in the price/value 

driven segment of the contact lens market. The combination of 

increased sales of higher margin new products and cost reduction 

initiatives are expected to yield improved operating margins in 

this business. 

In the surgical segment, revenues are expected to grow in the 

low double digits, driven primarily by continued strong growth 

in demand for products used in refractive surgery. Operating 

margins in this segment are expected to expand to nearly 20% 

over the next two years, driven by the continued integration of 

the two surgical businesses acquired in 1998, and a sales mix shift 

toward higher margin products. 

In the pharmaceuticals segment, revenues are expected to 

grow in the mid-single digits in 2000. As the company anticipated, 

new competition in the generic otic market is resulting 

in prices for these products trending down to their pre-1999 

levels. Consequently, 2000 sales comparisons will be off a largerthan-normal 

base. Operating margins are expected to be in the 

high teens in 2000 reflecting higher R&D spending and sales 

mix shifts. 

Capital spending in 2000 is expected to be approximately 

$130. The majority of this spending will be to support expanded 

manufacturing capacity within the vision care and pharmaceuticals 

segments, as well as to upgrade global financial and human 

resource systems. The company plans to expand its R&D spending 

specifically in its pharmaceuticals and surgical segments 

to support new technology. In addition, the company will 

continue to repurchase shares of its common stock during 2000 

under a five million share repurchase authorization, announced 

in 1999. The company expects to generate free cash flow in 

excess of $100 in 2000. 

Other Matters 

Environment The company believes it is in compliance in 

all material respects with applicable environmental laws and 

regulations. The company is presently involved in 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. 


Risks Associated With Year 2000 Date Issues As stated in 

previous reports, the company established a formal program to 

assess and renovate internal information technology (“IT”) and 

non-information technology (“non-IT”) operations that were 

identified as being at risk with regard to the year 2000 date 

issues, and further to evaluate the readiness of key third party 

suppliers of products, services, materials or data. The 

company experienced only limited minor incidents due to the 

date changeover, none of which affected its operations, products 

or services in a material way. Year 2000 costs, comprised of both 

period expenses and capital expenditures, of identifying and 

remediating year 2000 issues is expected to be approximately 

$53, of which approximately $51 has been spent to date. The 

remaining amount is expected to be spent during the first 

two quarters of 2000 as final year 2000 related programs are 

completed. Of the total anticipated costs, approximately 80% is 

expected to be capitalized as a part of system upgrades and 

replacements. The company will continue to monitor both its IT 

and non-IT systems for year 2000 issues as the year progresses. 

Contingency plans deemed necessary for critical systems and for 

addressing a potential failure of a key customer or supplier have 

been completed. The estimated costs of remediation and other 

information described above are based on information available 

at this time and may be updated as additional information 

becomes available. Readers are referred to the section of this 

filing labeled “Information Concerning Forward-Looking 

Statements” which address forward-looking statements made by 

the company. 

The Euro On January 1, 1999, eleven of the fifteen member 

countries of the European Union began operating with a new 

currency, the euro, which was established by irrevocably fixing 

the value of legacy currencies against this new common currency. 

The euro may be used in business transactions along with 

legacy currencies until 2002, at which time it will become the 

sole currency of the participating countries. 

The company has processes in place to address the issues 

raised by this currency conversion, including the impact on information 

technology and other systems, currency risk, financial 

instruments, taxation and competitive implications. The company 

expects no material impact to its financial position or its results 

of operations arising from the euro conversion. 

Employee Benefits Effective January 1, 2000, the company’s 

contributory defined benefit pension plan was converted to a 

noncontributory cash balance plan. This plan covers essentially 

all U.S. employees. The company’s defined contribution plan 

was also amended to increase the company match. The changes 

to these plans are not expected to materially affect the 

company’s results.

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 forwardlooking 

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 and general economic 

conditions in the global vision care and ophthalmic surgical and 

pharmaceuticals markets, where the company’s businesses 

compete, changes in global and localized economic and political 

conditions (for example, the company does business in Asia and 

Brazil, where recently, economies and associated currency risks 

have been volatile), changing trends in practitioner and consumer 

preferences and tastes, changes in technology, medical 

developments relating to the use of the company’s products, legal 

proceedings initiated by or against the company, 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, regulatory 

approval, marketing of products, 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 1999 Annual Report on 

Form 10-K. 

Purchased In-Process Research 

And Development 

In connection with the 1998 acquisitions of Chiron Vision and 

Storz, the company immediately expensed $41 ($28 for Storz 

and $13 for Chiron Vision) of the combined purchase price of 

these businesses, representing amounts for in-process research 

and development (IPR&D). The expensed IPR&D represented 

the value of projects that had not yet reached technological feasibility 

and for which the assets to be used in such projects had no 

alternative future uses (See Note 2 – Acquisitions). The company 

expects that products developed arising from the acquired 

IPR&D will begin to generate sales and positive cash flows in the 

time frames discussed in the following paragraphs. However, 

development of these technologies remains a significant risk due 

to the remaining effort to achieve technical viability, rapidly 

changing customer markets, uncertain standards for new products 

and significant competitive threats from numerous companies. 


Failure to bring the products associated with these projects to 

market in a timely manner could result in a loss of market share 

or a lost opportunity that could have a material adverse impact on 

the company’s businesses and operating results. 

The company estimated the fair value of the purchased 

IPR&D for each of these acquisitions using an income approach. 

Such methodology involved estimating the fair value of the purchased 

IPR&D using the present value of the estimated after-tax 

cash flows expected to be generated as a result of these projects 

and using risk-adjusted discount rates and revenue forecasts as 

appropriate. The selection of the discount rate was based on 

consideration of the company’s weighted average cost of capital, 

as well as other factors, including the useful life of each project, 

anticipated profitability levels of each project and the uncertainty 

surrounding successful development of each project 

known at the time. The amount expensed was also impacted by 

the percentage of completion for each project. The company 

expects to fund all R&D efforts, including acquired IPR&D, 

from cash flow from operations. 

Set forth below are descriptions of certain acquired IPR&D 

projects, including their status at the end of 1999: 

Storz At the beginning of 1998, the company acquired Storz, 

a leading manufacturer of high-quality ophthalmic surgical 

instruments, surgical and diagnostic equipment, intraocular lens 

(IOL) implants and ophthalmic pharmaceuticals. The allocation 

of $28 of the $370 purchase price to IPR&D represented its 

estimated fair value using the methodology described above. The 

$28 was allocated to the following projects: Cidofovir, $12; 

Ocuvite, $10 and other technologies, $6. 

Cidofovir – The company estimated that revenues attributed 

to Cidofovir, a broad spectrum anti-viral agent for the 

treatment of ocular infections, were expected to average in excess 

of $50 per year for the six years beginning in 2001. The discount 

rate and stage of completion used to derive the IPR&D amount 

were 18% and 32%, respectively. During 1998 and 1999 the 

company spent approximately $3 on R&D efforts for this 

product. Product development, however, has been discontinued 

due to a failure to meet expected performance attributes. 

Consequently, the company will not realize its forecasted 

revenues from this project. 

Ocuvite – Revenues attributed to alternative formulations 

of a currently marketed product, Ocuvite, a high-potency 

vitamin/mineral supplement, were expected to total approximately 

$37 for the three years ending in 2004, and then average 

approximately $40 annually through 2011. The discount rate 

and stage of completion used to derive the IPR&D amount 

were 22% and 54%, respectively. The company believes 

development costs and revenue projections made at the time of 

acquisition are still valid.

Other technologies – Of the remaining three projects, as 

originally anticipated, one began to generate revenues in 1999 

and two are expected to generate revenues in 2001. The expected 

rate of revenue growth varies depending on the project and does 

not vary materially from original projections. At the acquisition 

date, the expected aggregate cost to complete the projects was 

expected to be $5 and the actual amounts are not expected to 

vary materially from these estimates. The discount rate used to 

derive the IPR&D amounts was 15% for all projects with the 

stage of completion ranging from 17% to 44%. Approximately 

$2 in development costs remained at the end of 1999, all of 

which is expected to be spent by the end of 2002. 

Chiron Vision At the beginning of 1998, the company acquired 

Chiron Vision for $298 cash. Chiron Vision researches, develops 

and manufactures innovative products that improve results of 

cataract and refractive surgeries and enhance the treatment of 

progressive eye diseases. The allocation of $13 to IPR&D represented 

its estimated fair value using the methodology described 

above. The $13 was allocated to the following projects: IOL 

technologies, $7; disposable keratome, $4, and other refractive 

technology, $2. Each of these projects was assigned a discount 

rate of 18% to calculate IPR&D. 


IOL technologies – Revenues attributed to various IOL line 

extension technologies were expected to be approximately $50 

over the three years ending in 2002. At the acquisition date, 

costs to complete these projects were expected to be $1. These 

projects were estimated to be over 80% complete at the time of 

acquisition. Development was completed in 1999. The actual 

results to date for these projects in the aggregate are consistent in 

all material respects with the assumptions at the time of acquisition. 

Disposable keratome – Revenues attributed to a project to 

develop a single-use keratome were expected to be $37 over the 

five years beginning in 1999. At the acquisition date, costs to complete 

the project were expected to be less than $1. This technology 

did not meet management’s performance expectations. The loss of 

these anticipated revenues are expected to be offset by the additional 

revenues generated from the 1999 acquisition of Hansa 

Research and Development, Inc., the maker of the Hansatome 

microkeratome. 

Other refractive technology – Revenues attributed to a new 

type of refractive IOL are expected to begin in 2003 and generate 

approximate annual revenues of $27 by around 2006. At the 

acquisition date, costs to complete the R&D efforts were expected 

to be approximately $6. Approximate expenditures over the next 

five years are expected to average $1. The company believes 

development costs and revenue projections made at the time of 

the acquisition are still valid.

Statements Of Income 

For The Years Ended December 25, 1999, December 26, 1998 and December 27, 1997 

Dollar Amounts In Millions – Except Share and Per Share Data 

See the future 

19 

1999 1998 1997 

Net Sales $1,756.1 $1,597.5 $1,108.7 

Costs And Expenses 

Cost of products sold 706.3 662.2 400.6 

Selling, administrative and general 684.5 642.7 456.3 

Research and development 97.6 76.7 49.8 

Purchased in-process research and development .– 41.0 .– 

Restructuring charges and asset write-offs 53.5 5.4 39.1 

1,541.9 1,428.0 945.8 

Operating Income 214.2 169.5 162.9 

Other Expense (Income) 

Interest and investment income (45.5) (43.0) (39.1) 

Interest expense 88.4 99.4 54.9 

Gain from foreign currency, net (7.0) (6.6) (6.9) 

Other income (6.7) .– .– 

Litigation provision .– .– 21.0 

29.2 49.8 29.9 

Income From Continuing Operations 

Before Income Taxes And Minority Interest 185.0 119.7 133.0 

Provision for income taxes 


66.6 42.2 50.6 

Before Minority Interest 118.4 77.5 82.4 

Minority interest 15.7 21.9 20.4 


Discontinued Operations 

102.7 55.6 62.0 

Income (loss) from discontinued operations, net 34.0 (63.4) (12.6) 

Gain on disposals of discontinued operations, net 308.1 33.0 .– 


342.1 (30.4) (12.6) 

Net Income $ 444.8 $ 25.2 $ 49.4 

Basic Earnings (Loss) Per Share: 

Continuing Operations $ 1.79 $ 1.00 $ 1.12 

Discontinued Operations 5.97 (0.55) (0.23) 

$ 7.76 $ 0.45 $ 0.89 

Average Shares Outstanding – Basic (000s) 57,287 55,824 55,383 

Diluted Earnings (Loss) Per Share: 

Continuing Operations $ 1.75 $ 0.99 $ 1.12 

Discontinued Operations 5.84 (0.54) (0.23) 

$ 7.59 $ 0.45 $ 0.89 

Average Shares Outstanding – Diluted (000s) 58,639 56,367 55,654 

See Notes To Financial Statements

Balance Sheets 

December 25, 1999 and December 26, 1998 


PERCEIVE 

20 


1999 1998 

Assets 

Cash and cash equivalents $ 827.1 $ 129.2 

Other investments, short-term 125.0 300.0 

Trade receivables, less allowances of $19.6 and $26.8, respectively 438.0 526.3 

Inventories, net 239.6 440.7 

Deferred taxes, net .– 68.4 

Other current assets 156.0 122.2 

Net assets held for disposal, short-term 24.6 .– 

Total Current Assets 1,810.3 1,586.8 

Property, Plant And Equipment, net 524.8 725.0 

Goodwill And Other Intangibles, less accumulated amortization 

of $129.3 and $137.3, respectively 606.8 758.9 

Other Investments, long-term 173.8 249.2 

Other Assets 153.1 171.8 

Net Assets Held For Disposal, long-term 4.7 .– 

Total Assets $3,273.5 $3,491.7 

Liabilities And Shareholders’ Equity 

Notes payable $ 45.9 $ 160.4 

Current portion of long-term debt 1.0 31.1 

Accounts payable 94.8 92.6 

Accrued compensation 74.6 110.3 

Accrued liabilities 356.0 366.2 

Federal, state and foreign income taxes payable 47.3 51.8 

Total Current Liabilities 619.6 812.4 

Long-Term Debt, less current portion 977.0 1,281.3 

Deferred Income Taxes 117.7 .– 

Other Long-Term Liabilities 99.6 106.6 

Minority Interest 225.6 446.4 

Total Liabilities 2,039.5 2,646.7 

Common Stock, par value $0.40 per share, 200 million shares authorized, 

60,198,322 shares issued in both 1999 and 1998 

Class B Stock, par value $0.08 per share, 15 million shares authorized, 613,324 

24.1 24.1 

shares issued (955,791 shares in 1998) .– 0.1 

Capital In Excess Of Par Value 

Common And Class B Stock in Treasury, at cost, 3,435,738 shares 

89.6 84.2 

(4,625,026 shares in 1998) (150.1) (178.9) 

Retained Earnings 1,268.4 883.5 

Accumulated Other Comprehensive Income 9.0 41.0 

Other Shareholders’ Equity (7.0) (9.0) 

Total Shareholders’ Equity 1,234.0 845.0 

Total Liabilities And Shareholders’ Equity $3,273.5 $3,491.7 

See Notes To Financial Statements 

See the future

Statements Of Cash Flows 


Dollar Amounts In Millions 


1999 1998 1997 

Cash Flows From Operating Activities 

Net Income 

Adjustments to reconcile net income to net cash 

provided by operating activities: 

$ 444.8 $ 25.2 $ 49.4 

Depreciation 112.8 117.3 90.8 

Amortization 43.4 46.5 21.2 

Gain on divestitures (475.0) (56.0) .– 

Deferred income taxes 195.9 (2.5) (14.4) 

Restructuring charges and asset write-offs 53.5 11.3 71.7 

Stock compensation expense 8.0 10.6 3.3 

Loss on retirement of fixed assets 31.4 14.6 8.3 

Goodwill impairment charge .– 85.0 .– 

Purchased in-process research and development .– 41.0 .– 

Provision for litigation expense 

Changes In Assets And Liabilities: 

.– .– 21.0 

Trade receivables (93.0) (64.0) (32.9) 

Inventories (11.6) (19.7) (1.0) 

Other current assets (47.1) 17.0 (31.3) 

Accounts payable and accrued liabilities (45.5) (98.3) (11.7) 

Income taxes 3.9 21.5 51.0 

Other long-term liabilities 1.9 (3.3) (9.9) 

Net Cash Provided By Operating Activities 223.4 146.2 215.5 

Cash Flows From Investing Activities 

Capital expenditures (155.9) (201.5) (126.1) 

Net cash paid for acquisition of businesses (43.1) (718.9) (48.6) 

Net cash received from divestitures 1,048.4 135.0 9.3 

Proceeds from liquidation of other investment 300.0 .– .– 

Other 13.9 (12.0) (9.2) 

Net Cash Provided By (Used In) Investing Activities 1,163.3 (797.4) (174.6) 

Cash Flows From Financing Activities 

Proceeds from sale of partnership interest 200.5 .– .– 

Redemption of investor’s interest in partnership (400.0) .– .– 

Repurchases of Common and Class B shares (43.9) (1.8) (21.8) 

Exercise of stock options 62.3 47.7 14.8 

Net repayments of notes payable (414.7) (183.5) (72.7) 

Proceeds from issuance of long-term debt .– 801.4 213.5 

Repayment of long-term debt (31.6) (12.7) (89.3) 

Payment of dividends (59.5) (58.1) (57.1) 

Net Cash (Used In) Provided By Financing Activities (686.9) 593.0 (12.6) 

Effect Of Exchange Rate Changes On Cash And Cash Equivalents (1.9) 3.7 (12.4) 

Net Change In Cash And Cash Equivalents 697.8 (54.5) 15.9 

Cash And Cash Equivalents, Beginning Of Year 129.2 183.7 167.8 

Cash And Cash Equivalents, End Of Year $ 827.1 $ 129.2 $ 183.7 

Supplemental Cash Flow Disclosures 

Cash paid for interest $ 89.8 $ 85.6 $ 56.2 

Net cash payments for (refunds of) income taxes 52.4 55.8 (6.4) 

See Notes To Financial Statements

Statements Of Changes In Shareholders’ Equity 



Accumulated 

Common Capital In Other Other 

and Class B Excess of Treasury Retained Comprehensive Shareholders’ 

Total Stock 1,2 Par Stock Earnings Income Equity 

Balance At December 28, 1996 $ 881.9 $24.2 $ 96.1 $(230.5) $ 924.7 $ 78.2 $(10.8) 

Components of Comprehensive Income: 

Net income 49.4 .– .– .– 49.4 .– .– 

Currency translation adjustments (60.9) .– .– .– .– (60.9) .– 

Unrealized holding gain 11.8 .– .– .– .– 11.8 .– 

Total comprehensive income 

Net shares (canceled) issued under 

0.3 

employee plans (293,504 shares) 

Treasury shares issued under employee 

(16.2) .– (19.3) .– .– .– 3.1 

plans (620,621 shares) 29.2 .– .– 29.2 .– .– .– 

Treasury shares repurchased (521,925 shares) (21.8) .– .– (21.8) .– .– .– 

Amortization of unearned compensation 2.6 .– .– .– .– .– 2.6 

Dividends 3 (57.6) .– .– .– (57.6) .– .– 

Balance At December 27, 1997 818.4 24.2 76.8 (223.1) 916.5 29.1 (5.1) 


Net income 25.2 .– .– .– 25.2 .– .– 

Currency translation adjustments 11.9 .– .– .– .– 11.9 .– 



37.1 



(0.6) .– 7.4 .– .– .– (8.0) 

plans (1,255,044 shares) 46.0 .– .– 46.0 .– .– .– 



Dividends 3 (58.2) .– .– .– (58.2) .– .– 

Balance At December 26, 1998 845.0 24.2 84.2 (178.9) 883.5 41.0 (9.0) 


Net income 444.8 .– .– .– 444.8 .– .– 

Currency translation adjustments (32.0) .– .– .– .– (32.0) .– 



412.8 



0.4 (0.1) 5.4 .– .– .– (4.9) 

plans (1,854,740 shares) 72.2 .– .– 72.2 .– .– .– 



Dividends 3 (59.9) .– .– .– (59.9) .– .– 

Balance At December 25, 1999 $1,234.0 $24.1 $ 89.6 $(150.1) $1,268.4 $ 9.0 $ (7.0) 

1 There are also 10 thousand shares of $100 par value 4% cumulative preferred stock authorized, none of which has been issued. 

2 There are also 25 million shares of $1 par value Class A preferred stock authorized, none of which has been issued. 

3 Cash dividends of $1.04 per share were declared on Common and Class B stock in each of the years 1997, 1998 and 1999. 

See Notes To Financial Statements 


Notes To Financial Statements 


1. Accounting Policies 

Principles Of Consolidation The financial statements include all 

majority-owned U.S. and non-U.S. subsidiaries. Intercompany 

accounts, transactions and profits are eliminated. The fiscal year 

is the 52- or 53-week period ending the last Saturday in 

December. 

Segment Reporting In accordance with Statement of Financial 

Accounting Standards (SFAS) No. 131, Disclosures about Segments 

of an Enterprise and Related Information, the company split the 

pharmaceuticals/surgical segment into two separate segments in 

1999 to reflect changes in the manner in which financial information 

is viewed by management for decision-making purposes. 

The company now reports its operating results in three segments: 

vision care, pharmaceuticals and surgical. Prior year amounts 

have been restated to conform with the 1999 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 trade receivables, obsolete inventory 

and deferred income taxes. Actual results could differ from those 

estimates. 

Cash Equivalents Cash equivalents include time deposits and 

highly liquid investments with original maturities of three months 

or less. 

Inventories Inventories are valued at the lower of cost or market 

using the first-in, first-out (FIFO) method. 

Property, Plant And Equipment Property, plant and equipment, 

including improvements that significantly add to productive 

capacity or extend useful life, are recorded at cost, while maintenance 

and repairs are expensed as incurred. Depreciation is 

calculated for financial reporting purposes using the straight-line 

method based on the estimated useful lives of the assets as follows: 

buildings, 30 to 40 years; machinery and equipment, two to ten 

years; and leasehold improvements, the shorter of the estimated 

useful life or the lease periods. In accordance with SFAS 

No. 121, Accounting for the Impairment of Long-Lived Assets and 

for Long-Lived Assets to Be Disposed of, the company assesses all 

long-lived assets, including property, plant and equipment, for 

impairment whenever events or changes in circumstances indicate 

that the carrying amount of an asset may not be recoverable. 


Goodwill And Other Intangibles Goodwill and other intangibles 

are amortized on a straight-line basis over periods of up to 40 years. 

In accordance with SFAS 121, the company assesses intangible 

assets for impairment whenever events or changes in circumstances 

indicate that the carrying amount may not be recoverable. 

In completing this evaluation, the company compares its best 

estimate of undiscounted future cash flows, excluding interest 

costs, with the carrying value of the assets. If undiscounted cash 

flows do not exceed the recorded value, an impairment is recognized 

to reduce the carrying value based on the expected 

discounted cash flows of the business unit. Expected cash flows 

are discounted at a rate commensurate with the risk involved. 

Revenue Recognition Revenues are generally recognized when 

products are shipped to the customer. The company has established 

programs which, under specified conditions, enable 

customers to return product. The company establishes liabilities 

for estimated returns and allowances at the time of shipment. In 

addition, accruals for customer discounts and rebates are recorded 

when revenues are recognized. 

Advertising Expense External costs incurred in producing media 

advertising are expensed the first time the advertising takes place. 

Promotional or advertising costs associated with customer support 

programs are accrued when the related revenues are 

recognized. At December 25, 1999 and December 26, 1998, 

$3.3 and $4.0 of deferred advertising costs representing primarily 

production and design costs for advertising to be run in the subsequent 

fiscal year, were reported as other current assets. 

Advertising expenses for continuing operations of $181.2, $180.5 

and $148.8 were included in selling, administrative and general 

expenses for 1999, 1998 and 1997, respectively. 

Comprehensive Income As it relates to the company, comprehensive 

income is defined as net earnings plus the sum of currency 

translation adjustments and unrealized holding gains/losses on 

securities (collectively “other comprehensive income”), and is presented 

in the Statements of Changes in Shareholders’ Equity. A 

change in unrealized holding gains was reported net of an income 

tax benefit of $11.8 in 1997. 

Investments In Debt And Equity Securities In 1997, certain of 

the company’s other investments were classified as availablefor-sale 

under the terms of SFAS No. 115, Accounting for Certain 

Investments in Debt and Equity Securities, and accordingly, unrealized 

holding gains and losses, net of taxes, were excluded from

income and recognized as a component of accumulated other 

comprehensive income. Fair value of the investments was determined 

based on market prices or by reference to discounted cash 

flows, and investment risk. 

Foreign Currency For most subsidiaries outside the U.S., the 

local currency is the functional currency and translation adjustments 

are accumulated as a component of accumulated other 

comprehensive income. The accumulated balances of currency 

translation adjustments, net of taxes, were $9.0, $41.0 and $29.1 

at the end of 1999, 1998 and 1997, respectively. 

For subsidiaries that operate in U.S. dollars or whose economic 

environment is highly inflationary, the U.S. dollar is the 

functional currency and gains and losses that result from remeasurement 

are included in earnings. The company currently has 

one subsidiary that operates in a hyperinflationary economy. The 

risk exposure related to this subsidiary is not considered material 

to the company’s consolidated financial statements. The effects 

from foreign currency translation were losses of $3.8 in 1999, 

$2.2 in 1998 and $1.5 in 1997. 

The company hedges certain foreign currency transactions 

and firm commitments by entering into forward exchange 

contracts. Gains and losses associated with currency rate changes 

on forward contracts hedging foreign currency transactions are 

recorded in earnings. The effects of foreign currency transactions, 

including related hedging activities, were gains of $10.8, $8.8 and 

$8.4 in 1999, 1998 and 1997, respectively. 

Derivative Financial Instruments The company enters into foreign 

currency and interest rate derivative contracts for the purpose 

of minimizing risk and protecting earnings. 

The company uses principally foreign currency forward 

contracts to hedge foreign exchange exposures. The portfolio 

of contracts is adjusted at least monthly to reflect changes in 

exposure positions as they become known. When possible and 

practical, the company matches the maturity of the hedging 

instrument to that of the underlying exposure. Net settlements are 

generally made at contract maturity based on rates agreed to at 

contract inception. Gains and losses on hedges of transaction 

exposures are included in income in the period in which exchange 

rates change. Gains and losses 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 accumulated other comprehensive income. 

The receivable or payable with the counterparty to the derivative 

contract is reported as either other current assets or accrued 

liabilities. Deferred gains and losses totaled less than $0.5 at 

December 25, 1999 and December 26, 1998 and are expected to 

be recognized within one year. 



When appropriate, the company will generally enter into 

interest rate swap and cap agreements to effectively limit its exposure 

to interest rate movements within the parameters of its 

interest rate hedging policy. This policy indicates that interest rate 

exposures from floating-rate assets may be offset by a substantially 

similar amount of floating-rate liabilities. Interest rate derivatives 

may be used to readjust this natural hedge position whenever it 

becomes unbalanced beyond policy limits. Net payments or 

receipts on these agreements are accrued as other current assets 

and accrued liabilities and recorded as adjustments to interest 

expense or interest income. Interest rate instruments are entered 

into for periods no longer than the life of the underlying transactions 

or, in the case of floating-rate to fixed-rate swaps, for periods 

no longer than the underlying floating-rate exposure is expected 

to remain outstanding. Interest rate derivatives are normally held 

to maturity but may be terminated early, particularly if the underlying 

exposure is similarly extinguished. Gains and losses on 

prematurely terminated interest rate derivatives are recognized 

over the remaining life, if any, of the underlying exposure as an 

adjustment to interest income or interest expense. Due mainly to 

the proceeds received from the 1999 divestitures, the company 

exceeded policy limits at December 25, 1999. 

The company amortizes premium income or expense 

incurred from entering into derivative instruments over the life of 

each agreement as non-operating income and expense. 

New Accounting Guidance In June 1998, the Financial 

Accounting Standards Board (FASB) issued SFAS No. 133, 

Accounting for Derivative Instruments and Hedging Activities 

which was subsequently amended by SFAS 137, which requires 

the company to adopt SFAS 133 no later than the first quarter of 

2001. SFAS 133 will require the company to record all derivatives 

on the balance sheet at fair value. Changes in derivative fair values 

will either be recognized in earnings as offsets to the changes in 

fair value of related hedged assets, liabilities and firm commitments, 

or for forecasted transactions, deferred and recorded as a 

component of accumulated other comprehensive income until 

the hedged transactions occur and are recognized in earnings. The 

ineffective portion of a hedging derivative’s change in fair value is 

immediately recognized in earnings. The impact of SFAS 133 on 

the company’s financial statements will depend on a variety of 

factors, including the future level of forecasted and actual 

foreign currency transactions, the extent of the company’s hedging 

activities, the types of hedging instruments used and the effectiveness 

of such instruments. The company is currently evaluating 

the financial statement impact of adopting SFAS 133. 

In December 1999, the Securities and Exchange 

Commission (SEC) issued Staff Accounting Bulletin (SAB) 

No. 101, “Revenue Recognition in Financial Statements”, which 

summarizes certain of the SEC’s views in applying generally

accepted accounting principles to revenue recognition in financial 

statements. Management believes the company’s revenue recognition 

policies, as more fully described above, comply with the 

guidance contained in SAB 101 and, therefore, the company’s 

results of operations will not be materially affected. 

2. Acquisitions 

The following table presents information about acquisitions by 

the company during the two year period ended December 25, 

1999, as well as the goodwill and other intangible asset balances 

at December 26, 1998 and December 25, 1999. The 1999 and 

1998 acquisitions were accounted for under the purchase method 

with a portion of the purchase price allocated to goodwill and 

other intangible assets and, in some cases, purchased in-process 

research and development (IPR&D). 

Goodwill Other Intangibles 

(gross) (gross) Total 

Balances at December 26, 1998 

Storz1 $ 107.7 $172.1 $ 279.8 

Chiron Vision2 104.0 96.3 200.3 

Dr. Winzer Pharma3 31.4 .– 31.4 

All other – continuing4 153.5 37.2 190.7 

All other – discontinued5 182.4 11.6 194.0 

Activity during 1999 

579.0 317.2 896.2 

Hansa6 17.7 .– 17.7 

Orbtek6 12.1 12.4 24.5 

All other – discontinued5 (182.4) (11.6) (194.0) 

Other 1999 activity .– (8.3) (8.3) 

Balance at December 25, 1999 $ 426.4 $309.7 $ 736.1 

Accumulated Amortization7 Goodwill and Other Intangibles, net 

(129.3) 

at December 25, 1999 $ 606.8 

1 Storz Instrument Company, Storz Ophthalmics, Inc. and Cyanamid Chirurgie S.A.S. (collectively, Storz) was a leading manufacturer of ophthalmic surgical instruments, surgical 

and diagnostic equipment, intraocular lens implants and ophthalmic pharmaceuticals. It was acquired at the beginning of 1998 for $369.7 in cash. Goodwill is being amortized 

over an original life of 40 years. Other intangible assets are being amortized over original lives as follows: tradename of $37.3 and workforce of $12.9, 17 years; customer relationships 

of $80.8, 40 years; and technology/patents of $28.0, 10 years. 

2 Chiron Vision Corporation, acquired for cash of $298.1 in the beginning of 1998, researched, developed and manufactured innovative products that improved results in cataract 

and refractive surgeries and that enhanced the treatment of progressive eye diseases. Goodwill is being amortized over an original life of 20 years. Other intangible assets are 

being amortized over original lives as follows: tradename of $26.4 and customer relationships of $41.4, 20 years; workforce of $10.7, 14 years; and technology/patents of $18.1, 

8 years. 

3 Dr. Winzer Pharma, a pharmaceutical company in Germany, was acquired in May 1998. Goodwill has an original life of 15 years. 

4 Goodwill includes the following amounts: Dr. Mann Pharma, acquired in 1986, $82.5 with an original life of 30 years; Award, plc, acquired in 1996, $36.3 with an original life of 

15 years; remainder has average original life of 26 years with an average remaining life of 19 years. 

5 Amounts represent goodwill and other intangibles for businesses sold during 1999 as described in Note 3—Discontinued Operations. 

6 Hansa Research and Development, Inc, acquired in January 1999 for $18.4, manufactured the Hansatome microkeratome used in refractive surgery procedures. Goodwill is 

being amortized over an original life of 15 years. Orbtek, Inc, acquired in March 1999 for $24.7, developed a unique diagnostic system to give surgeons critical information about 

the eye. Goodwill is being amortized over an original life of 20 years. Other intangible assets are being amortized over original lives as follows: workforce of $0.2, 14 years; 

regulatory approvals of $8.5, 20 years; and technology/patents of $3.7, 10 years. 

7 Accumulated amortization at December 26, 1998 was $137.3. 


The purchase price for the acquisitions was allocated to 

tangible assets and intangible assets, including goodwill and 

identifiable intangible assets, less liabilities assumed, and in the 

case of Storz and Chiron Vision, to IPR&D. As required under 

generally accepted accounting principles, IPR&D was immediately 

expensed, resulting in a non-cash charge to earnings, since 

the underlying R&D projects had not reached technological 

feasibility and the assets to be used in such projects had no alternative 

future use. 

The useful lives of goodwill was determined based upon an 

evaluation of pertinent factors, including: 

• Individual aspects of each acquisition and the associated 

useful lives 

• Consideration to legal, regulatory and contractual provisions 

which could limit the maximum useful life 

• Management’s professional judgement and in some instances, 

the expert opinions of independent appraisers 

After considering these factors as they related to the Chiron 

Vision and Storz acquisitions, it was determined that the associated 

goodwill related explicitly to the perceived earnings potential 

of these businesses, and furthermore, that the future periods to 

benefit from these potential earnings were integrally associated 

with the acquired customer bases. Therefore, the asset lives 

assigned to goodwill were the same as the lives assigned to the 

customer base component of other intangible assets, which was 

40 and 20 years, respectively, for Chiron Vision and Storz. 

The asset lives of the other intangible assets acquired in the 

Chiron Vision and Storz acquisitions were determined by independent 

appraisers, and agreed to by management, using generally 

accepted actuarial methodologies needed to estimate useful lives 

from observed historical data. In estimating the useful life of the 

Storz customer relationships referred to in the above table, the 

appraisers evaluated relationships that Storz had fostered since its 

formation (and the formation of companies it had acquired) and 

calculated the useful life by observing the pattern of historical 

customer attrition. Based on this attrition pattern, customers were 

sorted into “vintage groups” that identified the length of tenure 

with Storz, analyzed for survival rates and translated into loss rates 

for each vintage. The annual survivor rates were then extrapolated 

to determine the future rate of customer loss and from this data a 

useful life of 40 years was calculated. The same statistical technique 

was used to determine the life of customer relationships for Chiron 

Vision, which was estimated to be 20 years. 

For the other categories of other intangible assets – tradenames, 

workforce and technology/patents – specific facts and 

circumstances were analyzed by the appraisers to determine 

appropriate asset lives. 



There were a combined 11 product development projects for 

Chiron Vision and Storz included in the $41.0 pre-tax charge to 

IPR&D. The projects were unique from other pre-existing core 

technology and pertained primarily to the development of new 

ophthalmic pharmaceutical drugs, new or redesigned intraocular 

lenses and products that support eye surgery procedures. The 

value allocated to IPR&D was determined using an income 

approach. Such methodology involved estimating the fair value of 

the purchased IPR&D using the present value of the estimated 

after-tax cash flows expected to be generated as a result of these 

projects and using risk-adjusted discount rates and revenue forecasts 

as appropriate. These estimates were consistent with 

historical pricing, margins and expense levels for similar products. 

Revenues were estimated based on relevant market size and 

growth factors, expected industry trends, individual product sales 

cycles and other factors. Estimated operating expenses, income 

taxes, and charges for use of contributory assets were deducted 

from estimated revenues to determine estimated after-tax cash 

flows for each project. Estimated operating expenses included 

cost of goods sold and selling, administrative and general 

expenses. The discount rates used to value the IPR&D projects 

ranged from 15% to 22%. These rates were based on the company’s 

weighted average cost of capital, as well as other factors, including 

the useful life of each project, the anticipated profitability of each 

project and the uncertainty regarding the successful completion of 

each project. The value of IPR&D was also impacted by the stage 

of completion of each project, which ranged from 17% to 95%. 

Management is primarily responsible for estimating the fair 

value of assets and liabilities obtained through acquisitions and 

has conducted due diligence in determining fair values. 

Management made estimates and assumptions at the time of 

each acquisition that affect the reported amounts of assets, liabilities 

and expenses, including IPR&D, resulting from such 

acquisitions. Actual results could differ from those amounts. 

During 1999, two of the product development projects representing 

40% of the $41.0 pre-tax charge were discontinued. Costs 

and expected revenues related to the remaining projects have not 

varied materially from original projections. 

Accrual for Exit Activities As part of the integration of Chiron 

Vision and Storz, management developed a formal plan that 

included the shutdown of duplicate facilities in the U.S., Europe 

and Asia, the elimination of duplicate product lines and the consolidation 

of certain administrative functions. The exit activities 

were committed to by management and formally communicated 

to employees shortly after the acquisitions were consummated. 

The major components of the accrual were as follows:

The costs of employee terminations related to 596 employees 

in production, R&D, selling and administration. During 1999 

and 1998, 384 and 100 of these employees were terminated, 

respectively, leaving 112 to be terminated in 2000. Employees to 

be terminated in 2000 include those in a foreign jurisdiction that 

involved a lengthy statutory process of notice and approval prior 

to termination. Management does not believe such process will 

result in severance payments or other costs materially different 

from those accrued. The facilities closure costs primarily represented 

leasehold termination payments and fixed asset 

writedowns relating to duplicate facilities. The closures and 

consolidations in the U.S. were substantially completed in 

1999. The closures and consolidations outside the U.S. were 

commenced in 1999 and are expected to be substantially 

complete in 2000. Involuntary termination benefits of $18.1 

were accrued in 1998. Amounts paid and charged against the 

liability were $8.4 in 1999 and $5.4 in 1998. 

3. Discontinued Operations 

On June 26, 1999, the company completed the sale of its sunglass 

business to Luxottica Group S.p.A. for $636.0 in cash. The company 

recorded an after-tax gain of $126.3 or $2.16 per diluted 

share, which included the costs associated with exiting the business, 

such as severance pay and additional pension costs. The results of 

the sunglass business have been reported as discontinued operations 

in the accompanying Statements of Income. Revenues of this 

business were $252.7, $445.6 and $482.9 for 1999, 1998 

and 1997, respectively. At the time of the sale, certain non-U.S. 

sunglass businesses were subject to deferred closings due to local 

regulatory and legal considerations, all of which should be 

resolved to enable closings to occur within a 12-month period 

from the original date of sale, with the exception of the company’s 

interest in the sunglass business of Bausch & Lomb India 

Costs of Exit Activities 

Employee 

Severance Facilities Contract 

and Relocation Closure Costs Terminations Total 

Accrued at acquisition date 

Less 1998 Activity 

$ 21.7 $ 5.5 $ 0.9 $ 28.1 

Cash payments (6.3) (0.7) (0.9) (7.9) 

Non-cash items .– (0.3) .– (0.3) 

Balances at December 26, 1998 

Less 1999 Activity 

15.4 4.5 .– 19.9 

Cash payments (10.7) (0.4) .– (11.1) 

Non-cash items .– (2.6) .– (2.6) 

Balances at December 25, 1999 $ 4.7 $ 1.5 $ .– $ 6.2 


Limited, which is expected to occur within 24 months from the 

original date of sale. Most of the deferred closings were completed 

prior to December 25, 1999. Net assets from the remaining units 

were classified as net assets held for disposal in the company’s 

December 25, 1999 balance sheet. Net assets of the sunglass 

business subject to deferred closing totaled $29.3 at December 

25, 1999, and consisted primarily of inventory, receivables, 

property, plant and equipment, accrued liabilities and payables. 

On August 30, 1999 the company completed the sale of its 

hearing aid business to Amplifon S.p.A., a privately-held 

company in Italy. The company recorded an after-tax gain of 

$11.1 or $0.19 per diluted share, including costs associated with 

exiting the business. Also during the third quarter, the company 

completed the sale of Charles River Laboratories, a biomedical 

business, to DLJ Merchant Banking Partners II, L.P., an affiliate 

of the investment banking firm of Donaldson, Lufkin and 

Jenrette, for approximately $400 in cash and $43 in promissory 

notes. The company retained a 12.5% equity interest in the 

Charles River Laboratories business. The company recorded an 

after-tax gain of $170.7 or $2.91 per diluted share, including costs 

associated with exiting the business. The hearing aid, the biomedical 

and the skin care business (which was sold in 1998) 

collectively, comprised the company’s healthcare segment. The 

results of the healthcare segment have been reported as discontinued 

operations in the accompanying Statements of Income. 

Revenues for this segment were $241.0, $319.7 and $324.1 

for 1999, 1998 and 1997, respectively. 

Income (loss) from discontinued operations as reported on the 

company’s Statements of Income were net of income taxes of $20.6, 

$14.2 and $(5.0) for the fiscal years ended 1999, 1998 and 1997. 

The balance sheets at December 25, 1999 and December 26, 1998 

and the statements of cash flows for the years ended December 

25, 1999, December 26, 1998 and December 27, 1997 have not 

been restated to reflect the divestitures of these businesses.

4. Earnings Per Share 

Basic earnings per share is computed based on the weighted average 

number of Common and Class B shares outstanding during a 

period. Diluted earnings per share reflect the assumed conversion 

of dilutive stock options. In computing the per share effect of 

assumed conversion, funds which would have been received from 


the exercise of options were considered to have been used to 

repurchase common shares at average market prices for the period, 

and the resulting net additional common shares are included in 

the calculation of average common shares outstanding. 

The table below summarizes the amounts used to calculate 

basic and diluted earnings per share: 

1999 1998 1997 

Income from continuing operations $102.7 $ 55.6 $ 62.0 

Income (loss) from discontinued operations, net 34.0 (63.4) (12.6) 

Gain on disposals of discontinued operations, net 308.1 33.0 .– 

Net Income $444.8 $ 25.2 $ 49.4 

Basic Net Income Per Common Share: 

Continuing operations $ 1.79 $ 1.00 $ 1.12 

Discontinued operations 0.59 (1.14) (0.23) 

Gain on disposal of discontinued operations 5.38 0.59 .– 

Net income per common share $ 7.76 $ 0.45 $ 0.89 

Diluted Net Income Per Common Share: 

Continuing operations $ 1.75 $ 0.99 $ 1.12 

Discontinued operations 0.58 (1.13) (0.23) 

Gain on disposal of discontinued operations 5.26 0.59 .– 

Net income per common share $ 7.59 $ 0.45 $ 0.89 

Basic average common shares outstanding (000s) 57,287 55,824 55,383 

Dilutive effect of stock options (000s) 1,352 543 271 

Diluted average common shares outstanding (000s) 58,639 56,367 55,654 

Antidilutive outstanding stock options were excluded from the calculation of average shares outstanding. Options excluded, in thousands, 

totaled 1,149 in 1999, 1,709 in 1998 and 3,431 in 1997. Actual outstanding Common and Class B shares at the beginning of the period 

were 56,529 in 1999, 55,209 in 1998 and 55,404 in 1997.

5. Restructuring Charges And Asset Write-offs 

1999 Program 

In December 1999, the company's board of directors announced that it was implementing a comprehensive program to exit certain contact 

lens manufacturing platforms and take additional steps to further reduce the administrative cost structure throughout the company. As a 

result, the company recorded a pre-tax charge of $56.7 for 1999, the major components of which are summarized in the table below: 


Vision Care Other/Administrative Total 

Provisions 

Employee terminations $ 27.1 $ 3.7 $ 30.8 

Asset write-offs 25.8 0.1 25.9 

Less 1999 Activity 

52.9 3.8 56.7 

Cash payments (1.0) .– (1.0) 

Non-cash items (25.8) (0.1) (25.9) 

Remaining reserve at December 25, 1999 $ 26.1 $ 3.7 $ 29.8 

The restructuring program within the vision care segment will focus on the elimination of certain contact lens manufacturing platforms 

resulting from exiting less cost-effective technologies. The programs included under other/administrative will focus primarily on further 

reducing overhead costs throughout the company. The major actions in this restructuring plan include: 

Start Date Anticipated Completion Date 

Project 

Vision Care 

Exit certain European manufacturing platforms Q4/99 Q2/00 

Exit certain U.S. manufacturing platforms Q4/99 Q4/00 

Eliminate internal infrastructure costs 

Other/Administrative 

Q4/99 Q2/00 

Eliminate internal infrastructure costs Q4/99 Q4/00 

The above projects will result in the termination of approximately 

900 employees. Vision care includes terminations of 710 

employees in production and 116 administrative staff. The 

other/administrative actions include the termination of approximately 

80 staff in both administrative and sales roles. As of 

December 25, 1999, approximately 240 employees have been 

involuntarily terminated under this restructuring plan with $1.0 

of related costs being charged against the liability. 

The employee terminations will result in future cash 

outflows to the company. These cash outflows, which began in 

December 1999, are expected to take place throughout 2000, 

with the majority of the outflows occurring in the second half of 

the year. The company will use its current cash balance as well as 

cash provided by operations to fund these cash outflows. 

In addition to employee terminations, the above projects 

resulted in $25.9 of asset write-offs, primarily for the abandonment 

of manufacturing equipment. The disposition and/or decommissioning 

of these assets occurred in the fourth quarter of 1999 

and January 2000.

1997 Program 

In April 1997, the company’s board of directors approved plans to 

restructure portions of each of the company’s business segments, 

as well as certain corporate administration functions. As a result, 

cumulative pre-tax restructuring charges of $85.5 were recorded 

through the first half of 1998. Of these charges, $46.0 related to 

The goal of this restructuring program was 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. During 

1999, the actions relating to these programs were completed and 

the remaining reserve of $3.2 was reversed. 

The 1997 program was expected to yield approximately 

$41.0 in annual cost savings. Actual cost savings related to this 

plan are in line with expectations. These cost savings are reflected 

primarily in reduced cost of sales and lower selling, administrative 

and general costs. The originally anticipated cost savings were 

largely reinvested in marketing and advertising to support new 

product launches. 

6. Business Segment And 

Geographic Information 

The company is organized by product line for management 

reporting with operating earnings being the primary measure of 

segment profitability. Certain distribution and general and 

Vision Care Pharmaceuticals Corporate Services Total 

Original Provision 1 $12.0 $ 5.0 $ 29.0 $ 46.0 


Cash payments (8.5) (1.9) (5.9) (16.3) 

Non-cash items (3.3) .– (0.3) (3.6) 


Cash payments (6.2) (1.7) (3.1) (11.0) 

Non-cash items .– .– .– .– 

Less 1999 Activity 1 

Cash payments 6.6 (1.2) (17.0) (11.6) 

Non-cash items 0.2 .– (0.5) (0.3) 

Less 1999 Reversal of Reserve (0.8) (0.2) (2.2) (3.2) 

Remaining Reserve 12/25/99 $ .– $ .– $ .– $ .– 

1 During the first quarter of 1999, the company reclassified its restructuring provisions and historical charges to properly reflect responsibilities for restructuring activity 

consistent with current segment reporting. The 1997 restructuring provisions and 1999 related charges have been amended to properly reflect the reclassification. 


ongoing operations and $39.5 related to divested businesses and 

are reported as part of income from discontinued operations. 

The following table sets forth the activity in this reserve for 

continuing operations through December 25, 1999: 

administrative expenses, including some centralized services 

provided by corporate functions, are allocated based on segment 

sales. No items below operating earnings are allocated to segments. 

Restructuring charges and charges related to certain significant 

events, although related to specific product lines, are also excluded 

from management basis results. The accounting policies used to 

generate segment results are the same as the company’s overall 

accounting policies. 

The company’s segments are vision care, pharmaceuticals 

and surgical. The vision care segment includes contact lenses, 

lens care products and vision accessories. The pharmaceuticals 

segment includes prescription ophthalmic drugs as well as overthe-counter 

medications. The surgical segment is comprised of 

cataract, refractive and retinal products. 

Segment assets represent operating assets of U.S. commercial 

entities, global manufacturing locations and inventories of non- 

U.S. commercial entities. Net assets from discontinued operations 

subject to deferred closings are classified as “net assets held for 

disposal” in the company’s 1999 balance sheet. Other operating 

assets of non-U.S. commercial entities are reported as “amounts 

not allocated” in the following table.

Business Segment The following table presents sales and other financial information by business segment for the years 1999, 1998 and 1997. 

The company does not have material intersegment sales. 

Operating Depreciation Capital 

Net Sales Earnings and Amortization Expenditures Assets 

1999 

Vision Care $1,029.5 $200.5 $ 65.3 $ 54.5 $ 524.3 

Pharmaceuticals 293.9 66.1 16.0 21.1 266.4 

Surgical 432.7 64.1 41.4 18.3 769.3 

1,756.1 330.7 122.7 93.9 1,560.0 

Corporate administration .– (63.0) 6.5 43.4 1,246.0 

Restructuring1 .– (53.5) .– .– .– 

Discontinued assets .– .– 27.0 18.6 .– 

Net assets held for disposal .– .– .– .– 29.3 

Amounts not allocated .– .– .– .– 438.2 

$1,756.1 $214.2 $156.2 $155.9 $3,273.5 

1998 

Vision Care $ 971.2 $208.4 $ 62.8 $112.8 $ 555.3 


Surgical 384.7 43.0 36.6 14.5 696.3 

1,597.5 300.6 115.0 144.5 1,513.8 

Corporate administration .– (52.6) 2.7 18.7 448.8 


Other significant charges3 .– (73.1) .– .– .– 

Discontinued assets .– .– 46.1 38.3 657.9 


$1,597.5 $169.5 $163.8 $201.5 $3,491.7 

1997 

Vision Care $ 918.1 $210.9 $ 49.0 $ 73.6 $ 463.1 


1,108.7 247.5 59.9 83.6 655.6 

Corporate administration .– (45.5) 2.2 1.6 456.0 


Discontinued assets .– .– 49.9 40.9 817.4 


$1,108.7 $162.9 $112.0 $126.1 $2,772.9 

1 Restructuring charges and asset write-offs were recorded as follows: vision care, $52.9; pharmaceuticals, $2.0; corporate administration, $1.8 and a reversal of $3.2 related to 

the 1997 reserve. 

2 Restructuring charges and asset write-offs were recorded as follows: vision care, $2.3 and corporate administration, $3.1. 

3 Other significant charges consisted of a charge of $41.0 for purchased in-process R&D and a purchase accounting inventory adjustment of $32.1. Both adjustments related to 

the Chiron Vision and Storz acquisitions. 

4 Restructuring charges and asset write-offs were recorded as follows: vision care, $19.4; pharmaceuticals, $5.0; and corporate administration, $14.7. 


Geographic Region The following table presents sales and long-lived assets by geography for the years 1999, 1998 and 1997. Sales to 

unaffiliated customers represent net sales originating in entities physically located in the identified geographic area. 

Long-lived assets include property, plant and equipment, goodwill and intangibles, other investments and other assets. 


U.S. Non-U.S. Consolidated 


Sales to unaffiliated customers $ 929.5 $826.6 $1,756.1 

Long-lived assets 

1998 

951.8 506.8 1,458.6 


Long-lived assets 

1997 

1,073.0 831.9 1,904.9 


Long-lived assets 743.8 938.9 1,682.7 

7. Supplemental Balance Sheet Information 

December 25, 1999 December 26, 1998 

Inventories 

Raw materials and supplies $ 54.0 $ 84.7 

Work in process 15.9 39.1 

Finished products 169.7 319.3 

Less allowance for valuation of certain U.S. 

239.6 443.1 

inventories at LIFO1 .– (2.4) 

$239.6 $440.7 

Inventories valued using LIFO $ .– $ 49.7 

1 LIFO valuation allowance related to certain inventories held by the company's divested sunglass business. 


Property, Plant And Equipment 

Land $ 12.0 $ 25.4 

Buildings 212.8 416.0 

Machinery and equipment 772.1 930.2 

Leasehold improvements 35.2 41.1 

1,032.1 1,412.7 

Less accumulated depreciation (507.3) (687.7) 

$ 524.8 $ 725.0

8. Other Short- And Long-Term Investments 

Netherlands Guilder Investment The company has invested 

219 million Netherlands guilders (NLG), all classified as longterm 

and approximating $136.0 at the time of the investment, 

in securities issued by a subsidiary of a triple-A rated financial 

institution. The issuer’s investments are restricted to high quality, 

short-term investments (less than 90 days) and government 

obligations, and as such, the net asset value is not expected to be 

materially different than fair value. The issuer reinvests all of its 

income. At December 25, 1999, the average U.S. dollar rate of 

return was 5.29%, including the effects of a cross-currency swap 

transaction that effectively hedges the currency risk and converts 

the NLG income to a U.S. dollar rate of return. 

The company, through two non-U.S. legal entities, owns 

approximately 22% of the subsidiary of the financial institution; 

the financial institution owns the remainder. The company has 

the right to put its equity position at net asset value to the financial 

institution at the end of each quarter until January 2003. 

Since the securities are not readily marketable, this represents the 

company’s ability to exit from the investment. 

The company also has the right to call the financial institution’s 

equity position at net asset value at the end of each quarter 

until October 2003. Should the company choose not to exercise 

either its put or call options, the financial institution may put its 

equity at net asset value to the company in March or June 2003. 

In either instance, the company would then own 100% of 

the subsidiary of the financial institution and account for it as a 

consolidated entity. The company would use the high quality, 

short-term investments of the issuer to offset the reduction in 

liquidity associated with full ownership of the subsidiary of the 

financial institution. 

Management believes this investment is fully recoverable at 

par value based on the high quality and stability of the financial 

institution. However, the investment is subject to equity risk. 


U.S. Dollar Investment The company invested $425.0 in equity 

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 25, 1999, this rate was 4.96%. 

The issuer and the company agreed to redeem these securities at 

par over a 12-month period commencing January 5, 1999, and as 

a result, the company classified $300.0 of this investment as 

short-term at December 26, 1998. At December 25, 1999, the 

remaining $125 unredeemed portion of the investment was 

classified as short-term and subsequently, on January 5, 2000, the 

remaining portion was redeemed. The company used the 

redemption proceeds to finance operational requirements outside 

the U.S. and invest in short-term money market instruments. 

Other Investments Upon the sale of the company’s biomedical 

business in September 1999, the company received a subordinated 

discount note due September 2010, with an original issue 

price of $43.0. The interest on this note, which varies from a rate 

of 12.0% to 15.0%, accretes daily to a value at maturity of 

$175.3. This note may be redeemed at any time prior to maturity 

at the discretion of the issuer at the accreted value on the date 

redeemed. The note is subordinate to the senior indebtedness of 

the issuer. The company also maintains a 12.5% equity interest in 

the divested business, valued at $19.9 at the end of 1999, and 

accounted for under the cost method.

9. Provision For Income Taxes 

An analysis of the components of earnings from continuing operations before income taxes and minority interest and the related provision 

for income taxes is presented below: 

Deferred taxes, detailed below, recognize the impact of temporary 

differences between the amounts of assets and liabilities 

recorded for financial statement purposes and such amounts 

measured in accordance with tax laws. Realization of the tax loss 

and credit carryforwards, some of which expire between 2000 and 

2006, and others which have no expiration, is contingent on 

future taxable earnings in the appropriate jurisdictions. Valuation 

allowances have been recorded for these and other asset items 

which may not be realized. Each carryforward item is reviewed for 

expected utilization, using a “more likely than not” approach, 

based on the character of the carryforward item (credit, loss, etc.), 

the associated taxing jurisdiction (U.S., state, non-U.S., etc.), the 

relevant history for the particular item, the applicable expiration 

dates, operating projects that would impact utilization, and identified 

actions under the control of the company in realizing the 


1999 1998 1997 

Earnings (loss) from continuing operations before income taxes 

and minority interest 

U.S. $ 39.7 $ (36.8) $ 27.3 

Non-U.S. 145.3 156.5 105.7 

$185.0 $119.7 $133.0 

Provision for income taxes 

Federal 

Current $ 13.4 $ 6.5 $ 36.2 

Deferred 

State 

6.6 (11.4) (18.5) 

Current 4.7 1.2 6.2 

Deferred 

Foreign 

4.9 (3.3) (0.8) 

Current 43.5 35.2 33.0 

Deferred (6.5) 14.0 (5.5) 

$ 66.6 $ 42.2 $ 50.6 

associated carryforward benefits. Additionally, the company’s 

utilization of U.S. foreign tax credit and state investment credit 

carryforwards is critically dependent on related statutory limitations 

that involve numerous factors beyond overall positive 

earnings, all of which must be taken into account by the company 

in its evaluation. The company assesses the available positive and 

negative evidence surrounding the recoverability of the deferred 

tax assets and applies its judgment in estimating the amount of 

valuation allowance necessary under the circumstances. The company 

continues to assess and evaluate strategies that will enable 

the carryforwards, or portion thereof, to be utilized, and will 

reduce the valuation allowance appropriately for each item at 

such time when it is determined that the “more likely than not” 

approach is satisfied.

Reconciliations of the statutory U.S. federal income tax rate to the effective tax rates for continuing operations were as follows: 

At December 25, 1999, earnings considered to be permanently 

reinvested in non-U.S. subsidiaries totaled approximately 

$902.5. Deferred income taxes have not been provided on these 

earnings as the company does not plan to initiate any action that 


Assets Liabilities Assets Liabilities 

Current: 

Sales and allowance accruals $ 23.4 $ .– $ 17.8 $ .– 

Employee benefits and compensation 17.2 .– 22.5 .– 

Inventories 20.0 5.3 25.1 .– 

Restructuring accruals 9.7 .– 4.5 .– 

Other accruals 1.3 7.1 11.4 1.0 

Unrealized foreign 

exchange transactions 1.9 8.0 1.8 2.5 

State and local income tax .– 8.1 .– 11.9 

$ 73.5 $ 28.5 $ 83.1 $15.4 

Non-current: 

Tax loss and credit carryforwards $110.8 $ .– $ 48.7 $ .– 

Employee benefits 26.4 0.3 30.0 0.3 

Other accruals 

Unrealized foreign exchange 

.– 11.6 .– 8.9 

transactions .– 14.0 .– 15.1 

Depreciation and amortization .– 25.1 7.6 21.7 

Valuation allowance (45.6) .– (39.6) .– 

Intercompany investments .– 203.3 .– .– 

91.6 254.3 46.7 46.0 

$165.1 $282.8 $129.8 $61.4 


1999 1998 1997 

Statutory U.S. tax rate 35.0% 35.0% 35.0% 

State income taxes, net of federal tax benefit 3.3 (1.2) 4.1 

Goodwill amortization 0.9 0.1 .– 

Foreign Sales Corporation tax benefit (0.9) (1.7) (1.2) 

Difference between non-U.S. and U.S. tax rates (2.8) 3.9 (1.4) 

Other 0.5 (0.9) 1.6 

Effective tax rate 36.0% 35.2% 38.1% 

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.

10. Debt 

Short-term debt at December 25, 1999 and December 26, 1998 

consisted of $20.9 and $101.9 in U.S. borrowings and $25.0 and 

$58.5 in non-U.S. borrowings, respectively. To support its liquidity 

requirements, the company maintains U.S. revolving credit 

agreements. During the second quarter of 1999, the company 

restructured its revolving credit agreements and now maintains 

364-day bilateral revolving credit agreements totaling $500.0. 

The interest rate under these agreements is based on LIBOR, or 

at the company’s option, such other rate as may be agreed upon 

by the company and the bank. No debt was outstanding under 

these agreements at December 25, 1999. In addition, the company 

maintains other lines of credit on which it may draw to meet its 

financing requirements. The company believes its existing credit 

facilities provide adequate liquidity to meet obligations, fund 

capital expenditures and invest in potential growth opportunities. 

Commitment fees on the revolving credit agreements fluctuate 

according to the long-term debt ratings of the company and were 


0.1% as of December 25, 1999. The company also maintains 

unused U.S. bank lines of credit amounting to approximately 

$27.0. Compensating balance arrangements for these lines are 

not material. 

During 1999, the company terminated two seven-year 

interest rate swap agreements. Each swap agreement had a 

notional amount of $100.0 and was used to convert $200.0 of 

U.S. commercial paper into fixed-rate obligations with effective 

interest rates, prior to termination, of 6.48%. 

Average short-term interest rates, which include the effect of 

the interest rate swap agreements in 1998, were 5.4% and 5.7% 

for the years ended 1999 and 1998, respectively. The maximum 

amount of short-term debt at the end of any month was $261.4 

in 1999 and $893.3 in 1998. Average short-term, month-end 

borrowings were $171.9 in 1999 and $550.1 in 1998. 

The components of long-term debt were: 

Interest Rate Percentage December 25, 1999 December 26, 1998 

Fixed-rate notes payable 

Notes due in 1999 2.21-2.28 $ .– $ 25.8 

Notes due in 2001 or 20111 6.15 100.0 100.0 

Notes due in 2001 or 20262 6.56 100.0 100.0 

Notes due in 20033 5.95 85.0 85.0 

Notes due in 2003 or 20131 6.38 100.0 100.0 

Notes due in 20044 6.75 200.0 200.0 

Notes due in 2005 or 20251 6.50 100.0 100.0 

Notes due in 20284 7.13 200.0 200.0 

All other fixed-rate notes 

Variable rate and other borrowings 

Various .– 7.0 

Promissory notes5 – .– 300.0 

Securitized trade receivables expiring in 2002 5.446 75.0 75.0 

Industrial Development Bonds due in 2015 5.156 8.5 8.5 

Other Various 9.5 11.1 

978.0 1,312.4 

Less current portion (1.0) (31.1) 

$977.0 $1,281.3 

1 Notes contain put/call options exercisable at 100% of par in 2001, 2003 and 2005 for the 6.15%, 6.38% and 6.50% notes, respectively. The company has also entered into remarketing 

agreements with respect to each of these issues, which allow the agent to call the debt from the holders on the option exercisable dates, and then remarket them. If this 

right is exercised the coupon rate paid by the company will reset to a rate higher than the then current market rate. 

2 Notes contain an option allowing the holder to put these notes back to the company in 2001; otherwise the notes mature in 2026. 

3 An interest rate swap agreement effectively converts this note to a floating-rate liability. At December 25, 1999, the effective rate on these notes was 5.88%. 

4 The company, at its option, may call these notes at any time pursuant to a make-whole redemption provision, which would compensate holders for any changes in market value 

of the notes upon early extinguishment. 

5 At December 26, 1998, a long-term revolving credit agreement supported $300.0 short-term unsecured promissory notes which were classified as long-term debt. 

6 Represents rate at December 25, 1999.

Interest rate swap agreements on long-term debt issues 

resulted in an increase in the long-term effective interest rate 

from 6.31% to 6.33% in 1999 and a reduction in 1998 longterm 

rates from 6.20% to 6.16%. Long-term borrowing 

maturities during the next five years are $1.0 in 2000; $9.0 in 

2001; $75.8 in 2002; $85.8 in 2003 and $199.8 in 2004. If all 

options on debt are exercised in future years, then $208.9 and 

$185.8 of long-term debt will be payable by the company in 

2001 and 2003, respectively. 

11. Operating Leases 

The company leases land, buildings, machinery and equipment 

under noncancelable operating leases. Total annual rental expense 

for 1999, 1998 and 1997 amounted to $34.2, $34.5 and $26.2, 

respectively. 

Minimum future rental commitments having noncancelable 

lease terms in excess of one year aggregated $134.3 as of December 


25, 1999 and are payable as follows: 2000, $24.8; 2001, $21.8; 

2002, $67.7; 2003, $6.7; 2004, $4.1 and beyond, $9.1. 

The company leases an office facility under a seven-year 

operating lease, expiring in 2002, with an associated residual value 

guarantee in an amount not to exceed $54.6. During 1999, net 

rental payments on the lease, included above, approximated $3.1. 

12. Employee Benefits 

The company’s benefit plans which in the aggregate cover 

substantially all U.S. employees and employees in certain other 

countries, consist of defined benefit pension plans, defined 

contribution plans and a participatory defined benefit postretirement 

plan. 

The information provided below pertains to the company’s 

defined benefit pension and postretirement plans. The following 

table provides reconciliations of the changes in benefit obligations, 

fair value of plan assets and funded status for the two-year 

period ending December 25, 1999. 

Pension Benefit Plans Postretirement Benefit Plan 

1999 1998 1999 1998 

Reconciliation of benefit obligation 

Obligation at beginning of year $257.1 $214.0 $ 68.1 $ 75.5 

Service cost 9.8 9.2 1.2 1.3 

Interest cost 16.9 16.2 4.3 4.8 

Participant contributions (1.7) (1.6) .– .– 

Plan amendments .– 0.4 .– .– 

Divestitures/acquisitions (30.3) 0.8 .– .– 

Currency translation adjustments (2.8) 1.8 .– .– 

Curtailment gains (1.9) .– (1.4) .– 

Benefit payments (18.0) (14.6) (6.5) (6.3) 

Actuarial loss (gain) 5.2 30.9 (3.4) (7.2) 

Obligation at end of year $234.3 $257.1 $ 62.3 $ 68.1 

Reconciliation of fair value of plan assets 

Fair value of plan assets at beginning of year $236.5 $201.6 $ 39.3 $ 33.9 

Actual return on plan assets 46.5 38.4 10.4 11.7 

Divestitures/acquisitions (30.3) 0.1 .– .– 

Employer contributions 7.5 8.2 .– .– 

Participant contributions 1.7 1.6 .– .– 

Benefit payments (18.0) (14.6) (6.5) (6.3) 

Currency translation adjustments (2.9) 1.2 .– .– 

Fair value of plan assets at end of year $241.0 $236.5 $ 43.2 $ 39.3 

Reconciliation of funded status to net 

amount recognized on the balance sheet 

Funded status at end of year $ 6.7 $ (20.6) $(19.1) $(28.8) 

Unrecognized transition (asset) obligation (7.6) 3.5 .– .– 

Unrecognized prior-service cost 10.0 11.6 (1.2) (1.3) 

Unrecognized actuarial gain (10.9) (0.9) (46.5) (45.8) 

Net amount recognized $ (1.8) $ (6.4) $(66.8) $(75.9)

The plan assets shown above for the pension benefit plans include 52,800 shares of the company’s Common stock. In 1999, three plans 

were sold as part of the biomedical divestiture, and in 1998, one plan was acquired with the purchase of the surgical businesses. 

The following table provides information related to underfunded pension plans: 



Projected benefit obligation $13.9 $25.0 

Accumulated benefit obligation 11.4 20.9 

Fair value of plan assets 0.1 1.8 

The company’s postretirement benefit plan was underfunded for each of the past two years. 

The following table provides the amounts recognized in the balance sheet as of the end of each year: 


1999 1998 1999 1998 

Prepaid benefit cost $ 9.8 $ 13.6 $ .– $ .– 

Accrued benefit liability (11.6) (20.0) (66.8) (75.9) 

Net amount recognized $ (1.8) $ (6.4) $(66.8) $(75.9) 

The following table provides the components of net periodic benefit cost for the plans for fiscal years 1999, 1998 and 1997: 


1999 1998 1997 1999 1998 1997 

Service cost $ 9.8 $ 9.2 $ 8.3 $ 1.2 $ 1.3 $ 1.2 

Interest cost 17.0 16.2 14.7 4.3 4.8 4.9 

Expected return on plan assets (21.1) (18.9) (16.8) (3.5) (3.0) (2.6) 

Amortization of transition obligation 0.7 0.7 0.7 .– .– .– 

Amortization of prior-service cost 1.7 1.8 1.8 (0.2) (0.1) (0.2) 

Amortization of net gain (0.4) (0.3) (0.2) (3.0) (2.7) (2.6) 

Net periodic benefit cost 7.7 8.7 8.5 (1.2) 0.3 0.7 

Curtailment loss (gain) 2.2 .– .– (1.4) .– (1.0) 

Net periodic benefit cost after curtailments $ 9.9 $ 8.7 $ 8.5 $(2.6) $ 0.3 $(0.3) 

The 1997 curtailment resulted from several plant closings that occurred as part of restructuring initiatives. In 1999, the curtailment was 

related to the divestiture of the sunglass business. 

Key assumptions used to measure benefit obligations in the company’s benefit plans are shown in the following table: 


Weighted Average Assumptions 

Discount rate 7.2% 6.8% 

Expected return on plan assets 7.8% 8.6% 

Rate of compensation increase 4.6% 4.3%

For amounts pertaining to postretirement benefits, a 6.75% annual rate of increase in the per capita cost of covered health care 

benefits was assumed for 1999. This rate is assumed to decrease to 5.5% in the year 2000 and remain constant thereafter. To demonstrate 

the significance of this rate on the expense reported, a one percentage point change in the assumed health care cost trend rate would have 

the following effect: 

The costs associated with defined contribution plans totaled $11.9, $12.0 and $8.4 for 1999, 1998 and 1997, respectively. 

13. Minority Interest 

In 1993, four wholly-owned subsidiaries of the company contributed 

operating and financial assets to a limited partnership for 

an aggregate 72% in general and limited partnership interests. 

The partnership is a separate legal entity from the company which 

owns and manages a portfolio of assets. Those assets included portions 

of the company’s former biomedical operations and certain 

assets used for the manufacture and sale of RGP contact lenses 

and RGP lens care products. During 1999, the partnership was 

restructured and no longer includes assets of these businesses. 

Partnership assets continue to include cash and cash equivalents, 

a long-term note from a consolidated subsidiary of the company, 

and floating-rate demand notes from another consolidated subsidiary 

of the company. For the company’s consolidated financial 

statements, the long-term note and the floating-rate demand 


notes are eliminated while the outside investor’s interest in the 

partnership is recorded as minority interest. 

In 1999, the original outside investor sold its interest in the 

partnership and was replaced by an investment banking firm. 

The outside investors’ limited partnership interest in the partnership 

has been recorded as minority interest totaling $200.0 at 

December 25, 1999 and $403.2 at December 26, 1998. 

14. Financial Instruments 

1% Increase 1% Decrease 

Effect on total service and interest cost components of net periodic 

postretirement health care benefit cost $0.6 $(0.6) 

Effect on the health care component of the accumulated postretirement 

benefit obligation $6.1 $(5.1) 

The carrying amount of cash, cash equivalents, current portion of 

long-term investments and notes payable approximated fair value 

because maturities are less than one year in duration. The company’s 

remaining financial instruments consisted of the following: 


Carrying Fair Carrying Fair 

Value Value Value Value 

Nonderivatives 

Other investments $ 173.8 $ 173.8 $ 249.2 $ 249.2 

Long-term debt, including current portion (978.0) (922.6) (1,312.4) (1,319.2) 

Derivatives held for purposes 

other than trading 

Foreign exchange instruments 

Other current assets $ 14.2 $ 7.6 

Accrued liabilities (10.4) (15.7) 

Net foreign exchange instruments 

Interest rate instruments 

$ 3.8 $ (7.3) $ (8.1) $ (8.3) 

Other current assets $ 21.9 $ 22.1 

Accrued liabilities (10.2) (15.2) 

Net interest rate instruments $ 11.7 $ 40.7 $ 6.9 $ 14.9

Fair value of other investments was determined based on 

contract terms and an evaluation of expected cash flows and 

investment risk. Fair value for long-term debt was estimated using 

either quoted market prices for the same or similar issues or the 

current rates offered to the company for debt with similar maturities. 

The fair value for foreign exchange and interest rate 

instruments was determined using a model that estimates fair 

value at market rates, or was based upon quoted market prices for 

similar instruments with similar maturities. 

The company, as a result of its global operating and financing 

activities, is exposed to changes in interest rates and foreign 

currency exchange rates that may adversely affect its results of 

operations and financial position. In seeking to minimize the 

risks and/or costs associated with such activities, the company 

manages exposures to changes in interest rates and foreign 

currency exchange rates by entering into derivative contracts. 

The company does not generally use financial instruments for 

trading or other speculative purposes, nor does it use leveraged 

financial instruments. 

The company enters into foreign exchange forward 

contracts primarily to hedge foreign currency transactions and 

equity investments in non-U.S. subsidiaries. At December 25, 

1999 and December 26, 1998, the company hedged aggregate 

exposures of $874.6 and $1,063.0, respectively, by entering into 

forward exchange contracts requiring the purchase and sale of 

U.S. and foreign currencies. The company selectively hedges firm 

commitments that represent both a right and an obligation, 

mainly for committed purchase orders for foreign-sourced inventory. 

In general, the forward exchange contracts have varying 

maturities up to, but not exceeding, two years with cash settlements 

made at maturity based upon rates agreed to at contract 

inception. At December 25, 1999 and December 26, 1998, the 

The total number of shares available for grant in each calendar 

year, excluding incentive stock options, shall be no greater than 

three percent of the total number of outstanding shares of 

Common stock as of the first day of each such year. No more than 

six million shares are available for granting purposes as incentive 

stock options under the company’s current plan. As of December 

25, 1999, 2.5 million shares remain available for such grants. 


company deferred gains of less than $0.5 relating to hedged 

firm commitments. 

The company’s exposure to changes in interest rates results 

from investing and borrowing activities. The company may enter 

into interest rate swap and cap agreements to effectively limit 

exposure to interest rate movements within the parameters of its 

interest rate hedging policy. At December 25, 1999 and 

December 26, 1998, the company was party to swap contracts 

that had aggregate notional amounts of $295.4 and $869.5, 

respectively. At year end 1999 and 1998, the company had an 

outstanding interest rate cap with a notional amount of NLG 

15.5 million that protects the company from exposures to rising 

NLG interest rates. 

Counterparties to the financial instruments discussed above 

expose the company to credit risks to the extent of non-performance. 

The credit ratings of the counterparties, which consist of a 

diversified group of major financial institutions, are regularly 

monitored and thus credit loss arising from counterparty nonperformance 

is not anticipated. 

15. Stock Compensation Plans 

The company sponsors several stock-based compensation plans, 

all of which are accounted for under the provisions of APB 

Opinion No. 25, Accounting for Stock Issued to Employees. 

Accordingly, no compensation cost has been recognized for the 

company’s fixed stock option plans or its employee stock purchase 

plan. Had compensation expense for the company’s fixed options 

been determined consistent with SFAS 123, Accounting for Stock- 

Based Compensation, the company’s net earnings and earnings 

per share would have been reduced to the pro forma amounts 

indicated below: 

Net Earnings Basic Earnings Per Share Diluted Earnings Per Share 

As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma 

1999 $444.8 $433.9 $7.76 $7.57 $7.59 $7.40 

1998 25.2 16.5 0.45 0.30 0.45 0.29 

1997 49.4 43.5 0.89 0.79 0.89 0.79 

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 outstanding in 1999, 1998 

and 1997:


1999 1998 1997 

Risk-free interest rate 6.22% 4.69% 5.66% 

Dividend yield 1.96% 2.48% 2.54% 

Volatility factor 31.06% 25.67% 25.17% 

Weighted average expected life (years) 3 4 5 

The weighted average value of options granted was $18.11, $10.93 and $10.59 in 1999, 1998 and 1997, respectively. 

A summary of the status of the company’s fixed stock option plans at year-end 1999, 1998 and 1997 is presented below: 

1999 1998 1997 

Weighted Weighted Weighted 

Number Of Average Number Of Average Exercise Number Of Average Exercise 

Shares Exercise Price Shares Price Shares Price 

(000s) (Per Share) (000s) (Per Share) (000s) (Per Share) 

Outstanding at beginning 

of year 5,050 $43.98 5,186 $41.00 5,030 $39.90 

Granted 1,185 72.85 1,400 50.64 1,176 42.32 

Exercised (1,444) 42.97 (1,265) 39.45 (432) 30.34 

Forfeited (413) 48.66 (271) 41.48 (588) 41.99 

Outstanding at year end 4,378 $51.69 5,050 $43.98 5,186 $41.00 

Options exercisable at 

year end 2,451 2,735 3,065 

The following represents additional information about fixed stock options outstanding at December 25, 1999: 

Options Outstanding Options Exercisable 

Weighted Average Weighted Weighted 

Range Of Number Remaining Average Exercise Number Average 

Exercise Prices Outstanding Contractual Life Price Exercisable Exercise Price 

Per Share (000s) (Years) (Per Share) (000s) (Per Share) 

$26.00 to 35.49 465 5.6 $35.13 462 $35.13 

35.50 to 45.49 1,398 6.3 41.12 1,155 40.83 

45.50 to 55.49 1,351 6.8 50.09 822 49.55 

55.50 to 65.49 14 9.9 63.12 – .– 

65.50 to 75.00 1,150 9.6 72.97 12 72.97 

4,378 7.3 $51.69 2,451 $42.84 

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 based upon the attainment of 

certain Economic Value Added (EVA) targets and continued 

employment until applicable vesting dates. EVA is defined by the 

company as net operating profit after tax less a capital charge 

calculated as average capital employed multiplied by the company’s 

cost of capital. EVA is not the same as, nor is it intended to be, 

a measure of operating performance in accordance with generally 

accepted accounting principles. 

Compensation expense is recorded based on applicable vesting 

criteria and, for those awards with performance goals, as such 

goals are met. In 1999, 1998 and 1997, 90,050, 259,905 and 

61,600 of such awards were granted at weighted average market 

values of $63.41, $46.14 and $41.92 per share, respectively. The 

compensation expense relating to stock awards in 1999, 1998 and 

1997 was $8.0, $10.6 and $3.3, respectively.

16. Litigation 

In its 1998 Annual Report, the company discussed a class action 

lawsuit pending before a New York State 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 Eyewash. The plaintiffs had 

appealed the dismissal of all of their claims by the trial court. On 

September 16, 1999, the New York Appellate Division, First 

Department, reversed the trial court’s ruling, reinstating the plaintiffs’ 

claims. The company has moved to decertify the matter as a 

class action. 

In several actions, the company is defending its long-standing 

policy of selling contact lenses only to licensed professionals 

against claims that it was adopted in conspiracy with others to 

eliminate alternative channels of trade from the disposable contact 

lens market. These matters include (i) a consolidated action in the 

United States District Court for the Middle District of Florida 

filed in June 1994 by the Florida Attorney General, and now 

includes claims by the attorneys general for 21 other states, and 

(ii) individual actions pending in California and Tennessee state 

courts. The company defends its policy as a lawfully adopted 

means of ensuring effective distribution of its products and safeguarding 

consumers’ health. 

Net Gross Net Earnings (Loss) Per Share 

Sales 8 Profit 8 Income (Loss) Basic Diluted 


First $ 389.9 $ 227.4 $ 22.4 $ 0.39 $ 0.39 

Second 453.3 275.9 173.4 1 3.03 2.94 1 

Third 446.3 270.0 231.8 2 4.03 3.94 2 

Fourth 466.6 276.5 17.2 3 0.30 0.29 3 

$1,756.1 $1,049.8 $444.8 $ 7.76 $ 7.59 

1998 

First $ 357.6 $ 191.1 $ (23.2) 4,5 $(0.42) $(0.42) 4,5 

Second 408.3 229.9 55.3 4,6 0.99 0.98 4,6 

Third 403.1 246.0 36.2 0.65 0.64 

Fourth 428.5 268.3 (43.1) 7 (0.77) (0.77) 7 

$1,597.5 $ 935.3 $ 25.2 $ 0.45 $ 0.45 

1 Includes the after-tax gain on sale of the sunglass business of $126.3 ($2.14 per share). 

2 Includes the after-tax gain on sale of the biomedical and the hearing aid businesses totaling $181.8 ($3.09 per share). 

3 Includes the after-tax effect of restructuring charges that reduced net income by $34.2 ($0.59 per share). 

4 Includes the after-tax effect of restructuring charges of $2.4 ($0.04 per share) and $5.1 ($0.09 per share) for the first and second quarters of 1998, respectively. 

5 Includes the after-tax write-off of purchased IPR&D of $24.6 ($0.44 per share). 

6 Includes the after-tax gain on sale of the skin care business of $33.0 ($0.58 per share). 

7 Includes an impairment charge of $85.0 ($1.51 per share) recorded by the company's divested hearing aid business. 

8 Previously reported amounts for the first quarter of 1999 and for each quarter of 1998 included sales from the divested sunglass and healthcare businesses. Previously reported 

amounts were as follows: first quarter 1998 (net sales, $553.1; gross profit, $277.0); second quarter 1998 (net sales, $635.1; gross profit, $336.8); third quarter 1998 (net sales, 

$575.6; gross profit, $317.4); fourth quarter 1998 (net sales, $599.0; gross profit, $338.5) and first quarter 1999 (net sales, $574.4; gross profit, $307.5). 


17. Subsequent Event 

On January 27, 2000, the company announced that it had settled 

a lawsuit with Alcon Laboratories, Inc. (Alcon). The settlement 

relates to a patent infringement case that the company filed 

against Alcon in October 1994 for a patent related to enzymatic 

cleaning of contact lenses. 

Under the terms of the settlement agreement, Alcon made 

an up-front payment to the company of $25 to resolve all issues 

relative to the company’s claims filed against them, which amount 

will be recorded as income in the first quarter of 2000. 

Additionally, Alcon will pay to the company a royalty stream 

over the next eight years, the present value of which approximates 

$49. This royalty stream compensates the company for Alcon’s 

future use of a worldwide license under the company’s patent for 

the simultaneous use of chemical disinfecting solutions with an 

enzyme cleaning product for contact lens care. 

18. Quarterly Results, Stock Prices And 

Selected Financial Data 

Quarterly Results (unaudited) 

The following table presents reported net sales, gross profit (net 

sales less cost of products sold), net income (loss) and earnings 

(loss) per share for each quarter during the past two years. Net 

sales and gross profit are from continuing operations and are 

reported on the same basis as amounts in the accompanying 

Statements of Income on page 19.

Quarterly Stock Prices (unaudited) 

The company’s Common stock is listed on the New York Stock Exchange and is traded under the symbol BOL. There were approximately 

7,000 and 7,200 Common shareholders of record at year-end 1999 and 1998, respectively. The following table shows the price range of the 

Common stock for each quarter for the past two years: 


Price Per Share Price Per Share 

High Low High Low 

First $66 7 ⁄8 $56 5 ⁄16 $46 1 ⁄4 $37 3 ⁄4 

Second 83 3 ⁄8 61 52 11 ⁄16 45 1 ⁄4 

Third 78 5 ⁄8 61 1 ⁄2 52 3 ⁄4 38 11 ⁄16 

Fourth 69 1 ⁄16 52 5 ⁄8 59 3 ⁄8 38 1 ⁄16 

Selected Financial Data (unaudited) 

1999 1998 1997 1996 1995 1994 

Results For The Year 

Net sales 1 $1,756.1 $1,597.5 $1,108.7 $1,066.6 $1,003.2 $ 899.0 

Income from continuing operations 1 102.7 55.6 62.0 63.5 45.9 59.6 

Net income 444.8 25.2 49.4 83.1 112.0 31.1 

Continuing operations – 

basic earnings per share 1 1.79 1.00 1.12 1.13 0.80 1.01 

Net income – basic earnings per share 7.76 0.45 0.89 1.48 1.94 0.53 

Continuing operations – 

diluted earnings per share 1 1.75 0.99 1.12 1.12 0.79 1.00 

Net income – diluted earnings per share 7.59 0.45 0.89 1.47 1.93 0.52 

Dividends per share 1.04 1.04 1.04 1.04 1.01 0.96 

Year End Position 

Working capital $1,190.7 $ 774.4 $ 202.9 $ 18.5 $ 70.9 $ 277.4 

Total assets 3,273.5 3,491.7 2,772.9 2,603.4 2,550.1 2,457.7 

Short-term debt 46.9 191.5 343.8 482.1 383.5 300.6 

Long-term debt 977.0 1,281.3 510.8 236.3 191.0 289.5 

Shareholders’ equity 1,234.0 845.0 818.4 881.9 929.3 914.4 

Other Ratios And Statistics 

Return on sales for continuing operations 5.8% 3.5% 5.6% 6.0% 4.6% 6.6% 

Return on average shareholders’ equity 43.3% 3.1% 5.9% 9.2% 11.9% 3.2% 

Return on invested capital 21.7% 3.8% 5.0% 7.2% 9.3% 3.8% 

Return on average total assets 13.1% 0.7% 1.8% 3.1% 4.5% 1.2% 

Effective income tax rate for 

continuing operations 36.0% 35.2% 38.1% 38.7% 36.5% 31.9% 

Current ratio 2.9 2.0 1.2 1.0 1.1 1.4 

Total debt to shareholders’ equity 83.0% 174.3% 104.4% 81.5% 61.8% 64.5% 

Total debt to capital 45.3% 63.5% 51.1% 44.9% 38.2% 39.2% 

Capital expenditures $ 155.9 $ 201.5 $ 126.1 $ 130.3 $ 95.5 $ 84.8 

1 Amounts have been modified or added, as necessary, to reflect the divestitures described in Note 3 – Discontinued Operations and Note 2 – Acquisitions. 


Report Of Management 

The preceding financial statements of Bausch & Lomb Incorporated were prepared by the company’s management, which is responsible for 

their reliability and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, 

include amounts based on informed estimates and judgments of management with consideration given to materiality. Financial information 

elsewhere in this annual report is consistent with that in the financial statements. 

Management is further responsible for maintaining a system of internal controls to provide reasonable assurance that Bausch & Lomb’s 

books and records reflect the transactions of the company; that assets are safeguarded; and that management’s established policies and 

procedures are followed. Management systematically reviews and modifies the system of internal controls to improve its effectiveness. 

The internal control system is augmented by the communication of accounting and business policies throughout the company; the careful 

selection, training and development of qualified personnel; the delegation of authority and establishment of responsibilities; and a comprehensive 

program of internal audit. 

Independent accountants are engaged to audit the financial statements of the company and issue a report thereon. They have informed 

management and the audit committee of the board of directors that their audits were conducted in accordance with generally accepted 

auditing standards, which require a review and evaluation of internal controls to determine the nature, timing and extent of audit testing. 

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 25, 1999, the 

internal control system was functioning effectively and accomplished the objectives discussed herein. 

William M. Carpenter Stephen C. McCluski 

Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer 

Report Of The Audit Committee 

The audit committee of the board of directors, which held three meetings during 1999, is composed of five outside directors. The chair of 

the committee is Alvin W. Trivelpiece, Ph.D. The other members are Franklin E. Agnew, Domenico De Sole, Ruth R. McMullin and Linda 

Johnson Rice. 

The audit committee meets with the independent accountants, management and the internal auditors to provide reasonable assurance 

that management fulfills its responsibilities in the preparation of the financial statements and in the maintenance of an effective system of 

internal controls. The audit committee reviews the performance and fees of the independent accountants, recommends their appointment 

and meets with them and the internal auditors, with and without management present, to discuss the scope and results of their audit work. 

Both the independent accountants and the internal auditors have full access to the audit committee. 

Alvin W. Trivelpiece, Ph.D. 

Chair, Audit Committee 


Report Of Independent Accountants 

To the Shareholders and Board of Directors of Bausch & Lomb Incorporated: 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and changes 

in shareholders’ equity present fairly, in all material respects, the financial position of Bausch & Lomb Incorporated and its subsidiaries at 

December 25, 1999 and December 26, 1998, and the results of their operations and their cash flows for each of the three years in the period 

ended December 25, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are 

the responsibility of the company’s management; our responsibility is to express an opinion on these financial statements based on our audits. 

We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, 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. 

Rochester, New York 

January 25, 2000 


Directors 

William M. Carpenter (1) 

Chairman and Chief Executive Officer 


Director since 1996 

Franklin E. Agnew (1)(2)(3) 

Business Consultant 

Pittsburgh, Pennsylvania 


Domenico De Sole (2) 

President and Chief Executive Officer 

Gucci Group N.V. 

London, United Kingdom 


Jonathan S. Linen (3)(4) 

Vice Chairman 

American Express Company 

New York, New York 


Officers 



5 years of service with the company 

Named to current position: 1/99 

Carl E. Sassano 

President and Chief Operating Officer 



Senior Vice Presidents 

Daryl M. Dickson 

Human Resources 



Hakan S. Edstrom 

Global Surgical 



Dwain L. Hahs 

Global Vision Care 



Stephen C. McCluski 

Chief Financial Officer 



Ruth R. McMullin (2) 

Chairperson 

Eagle-Picher Personal Injury 

Settlement Trust 

Savannah, Georgia 


John R. Purcell (1)(4) 


Grenadier Associates Ltd. 

Juno Beach, Florida 


Linda Johnson Rice (2) 

President and Chief Operating Officer 

Johnson Publishing Company Inc. 

Chicago, Illinois 


Thomas M. Riedhammer, Ph.D. 

Global Pharmaceuticals and 

Chief Technical Officer 



Robert B. Stiles 

General Counsel 



Vice Presidents 

Gary M. Aron 

Scientific Affairs –Vision Care/Surgical 



Alan P. Dozier 

North American Vision Care 



Alan H. Farnsworth 

Business Development 



Geoffrey F. Ide 

Japan 




Alvin W. Trivelpiece, Ph.D. (2)(4) 

Director 

Oak Ridge National Laboratory and 

President 

Lockheed Martin Energy 

Research Corporation 

Oak Ridge, Tennessee 


William H. Waltrip (1) 

Chairman of the Board 

Technology Solutions Company 

Chicago, Illinois 


Kenneth L. Wolfe (1)(3) 

Chairman of the Board and 

Chief Executive Officer 

Hershey Foods Corporation 

Hershey, Pennsylvania 


David F. Jarosz 

North American Pharmaceuticals 



Barbara M. Kelley 

Corporate Communications 



Jurij Z. Kushner 

Controller 



Thomas W. Lance 

Global Operations –Vision Care 



Paul A. Lopez 

North American Surgical 



John M. Loughlin 

Asia 



Committee Memberships: 

1 Executive Committee 

2 Audit Committee 

3 Committee on Management 

4 Committee on Directors 

James F. Milton 

Latin America 



Angela J. Panzarella 

Investor Relations 



Alan H. Resnick 

Treasurer 



Mark M. Sieczkarek 

Europe, Middle East and Africa 



David A. Souerwine 

General Eye Care 



Secretary 

Jean F. Geisel 


Named to current position: 7/97

Corporate Information 

Internet Address: 

Corporate, product, financial and shareholder information, 

including news releases, financial filings and stock quotes are 

available at Bausch & Lomb’s web site: 

www.bausch.com 

Corporate Headquarters: 

One Bausch & Lomb Place 

Rochester, New York 14604 

(716) 338-6000 

(800) 344-8815 

News on Demand: 

Bausch & Lomb’s news releases are available toll-free by calling: 

(888) 329-1096 

Financial Literature: 

Copies of Bausch & Lomb’s annual reports and financial reports filed 

with the Securities and Exchange Commission, including its Form 

10-K, are available on our website, by mail (attn: Investor Relations) 

or by calling: 

(888) 884-8702 

(716) 338-5757 

Investor Relations: 

Security analysts and shareholders seeking information concerning 

company operations, shareholder programs or dividend policy 

may contact: 

Angela J. Panzarella 

Vice President, Investor Relations 

(716) 338-6025 

Angela_J_Panzarella@bausch.com 

Media Inquiries: 

News media representatives and others seeking general information 

may contact: 

Holly Houston 

Director, Media Relations 

(716) 338-8064 

Holly_Houston@bausch.com 

Transfer Agent: 

Shareholders seeking information regarding their individual accounts 

or dividend payments may contact our stock transfer agent: 

ChaseMellon Shareholder Services 

P.O. Box 3315 

South Hackensack, New Jersey 07606 

(800) 288-9541 

www.chasemellon.com 

Total recycled fiber content of not less than 50% 

Dividend Reinvestment Plan: 

The plan is available to all shareholders of Bausch & Lomb stock. 

Under the plan, shareholders may elect to have their cash dividends 

automatically invested in additional shares of the company’s common 

stock. Shareholders may also elect to make cash contributions of up 

to $60,000 per year to purchase additional shares. For additional 

information contact: 

Mellon Bank, N.A. 

Investment Services 

P.O. Box 3339 

South Hackensack, New Jersey 07606 

(800) 288-9541 

www.chasemellon.com 

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: 

Aberrometer 

Alrex 

AMVISC 

AMVISC Plus 


Boston 

Boston EO 

Catarex 

Hansatome 

Design: Richard Uccello, Andrew Wessels 

Ted Bertz Graphic Design 

Middletown, Connecticut 

Printing: Finlay Brothers Printing 

Bloomfield, Connecticut 

Executive Portrait: Ted Kawalerski 

New York, New York 

©2000 Bausch & Lomb Incorporated 

All Rights Reserved Worldwide 

Medalist 

Millennium 

MPORT 

MPORT SI 

Ocuvite 

Ocuvite Extra 

Opcon-A 

Orbscan 

Orbscan II 

Passport 

PureVision 

ReNu 

ReNu MultiPlus 

SofLens 

SofLens66 

Soflex 

Technolas 217 

Vitrasert 

EVA is a trademark of Stern Stewart & Co. 

Lotemax is a trademark of Pharmos Corporation 

Polytrim is a trademark of Allergan, Inc. 

Surodex is a trademark of Oculex Pharmaceuticals, Inc.

Bausch & Lomb 1999 Annual Report

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