Bausch + Lomb (US:BLCO)2023-02-21 16:00PART I Item 1. Business Bausch + Lomb, a global eye health company, focuses on R&D and market expansion across its Vision Care, Ophthalmic Pharmaceuticals, and Surgical segments - Bausch + Lomb is a global eye health company with a portfolio of approximately 400 products, operating in about 100 countries3454 - Following its IPO in May 2022, Bausch + Lomb is a subsidiary of Bausch Health Companies Inc (BHC), which holds approximately 88.7% of its common shares as of February 17, 2023 The full separation is planned but subject to conditions343655 Segment Revenues (2020-2022) | Segment | 2022 Revenue (in millions) | 2022 Pct. | 2021 Revenue (in millions) | 2021 Pct. | 2020 Revenue (in millions) | 2020 Pct. | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Vision Care | $2,373 | 63% | $2,343 | 62% | $2,109 | 62% | | Ophthalmic Pharmaceuticals | $677 | 18% | $704 | 19% | $726 | 21% | | Surgical | $718 | 19% | $718 | 19% | $577 | 17% | | Total Revenues | $3,768 | 100% | $3,765 | 100% | $3,412 | 100% | - The company's business strategy is centered on continuous investment in its product pipeline, leveraging its integrated eye health expertise to strengthen market position, and increasing product adoption by expanding into new markets and therapeutic areas3858 - As of February 17, 2023, the company owns or licenses approximately 1,934 granted patents worldwide, with about 415 in the U.S The R&D pipeline includes over 60 projects supported by approximately 850 dedicated personnel7189 - The company operates 24 manufacturing facilities in 10 countries and employs approximately 12,900 people globally as of December 31, 2022141114 Item 1A. Risk Factors The company faces significant risks from macroeconomic pressures, its planned separation from BHC, supply chain reliance, intense competition, stringent regulations, and pipeline development uncertainties - The company faces significant risks from its planned separation from BHC, including the possibility that the separation may not be completed, potential conflicts of interest due to BHC's majority ownership, and challenges operating as a newly independent company154171177 - Adverse economic conditions, including inflation and recessionary pressures, could negatively impact revenues, expenses, and margins The ongoing COVID-19 pandemic also continues to pose risks to the supply chain and product demand160168887 - The company relies on single or limited sources for some finished products and raw materials, including for key products like LUMIFY®, VYZULTA®, SofLens®, renu®, and PureVision® Any disruption could materially impact the business112113936 - The business is subject to extensive government regulation, including ongoing review of products and facilities by the FDA and other global agencies New regulations, such as the EU's Medical Device Regulation (MDR), impose stricter requirements and could increase costs or prevent the sale of non-compliant products212213 - The ongoing conflict between Russia and Ukraine poses risks to the company's operations in the region and could have broader impacts on global financial markets and supply chains In 2022, Russia accounted for approximately 4% of the company's revenues204231260 - The successful development and commercialization of pipeline products is highly uncertain and requires significant time and expenditure Failure to bring new products to market could have a material adverse effect on future growth183903 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None382 Item 2. Properties The company owns and leases numerous global properties, including key manufacturing and R&D facilities, with its corporate headquarters in Vaughan, Ontario Principal Properties | Location | Purpose | Segment(s) | Ownership | Approx. Sq. Footage | | :--- | :--- | :--- | :--- | :--- | | Vaughan, Ontario, Canada | Corporate headquarters and distribution | All Segments | Leased | 66,000 | | Bridgewater, New Jersey | Administration shared with BHC | All Segments | Leased | 310,000 | | Rochester, New York | Offices, R&D and manufacturing | Vision Care | Owned | 953,000 | | Waterford, Ireland | R&D and manufacturing | Vision Care | Owned | 500,000 | | Jinan, China | Offices and manufacturing | Ophthalmic Pharma + Vision Care | Owned | 418,000 | | Berlin, Germany | Manufacturing, distribution and office | Ophthalmic Pharmaceuticals | Owned | 339,000 | | St. Louis, Missouri | Offices, R&D and manufacturing | Surgical | Owned | 140,000 | Item 3. Legal Proceedings While stating 'None,' this section refers to Note 20 for details on various legal proceedings, including antitrust and product liability cases - The item states "None" but directs the reader to Note 20 of the Consolidated Financial Statements for details on legal proceedings356384 Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable356 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on NYSE and TSX under 'BLCO', with no dividends paid since IPO, and are subject to Canadian foreign ownership regulations - Common shares are traded on the NYSE and TSX under the symbol "BLCO"358 - The company has not paid dividends since its IPO and does not currently intend to pay cash dividends in the foreseeable future388348 - There were no purchases of equity securities by the company during the fourth quarter of the year ended December 31, 2022371 - The Investment Canada Act may require review and approval of an acquisition of "control" of the company by a non-Canadian360389 Item 6. [Reserved] This item is reserved and contains no information - This item is reserved394 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, revenues remained flat at $3.77 billion due to foreign currency impacts, while operating income declined 37% and net income fell significantly due to new interest expenses and inflationary pressures Financial Performance Summary (2021 vs. 2022) | Metric (in millions) | 2022 | 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $3,768 | $3,765 | $3 | <1% | | Operating Income | $207 | $329 | ($122) | (37%) | | Net Income Attributable to B+L | $6 | $182 | ($176) | (97%) | | Interest Expense | $146 | $0 | $146 | N/A | - Revenue growth was driven by increased volumes ($114 million) and pricing ($83 million), but was almost entirely offset by an unfavorable foreign currency impact of $184 million456 - The company's R&D pipeline contains over 60 projects Key developments include the U.S. launch of XIPERE® for macular edema and the submission of an NDA for NOV03 for Dry Eye Disease, with a PDUFA date of June 28, 2023402406431 - In connection with its IPO in May 2022, the company entered into a new credit agreement, including a $2.5 billion term loan and a $500 million revolving credit facility, leading to a new interest expense of $146 million in 2022500562 - The company is experiencing inflationary pressures and supply-chain challenges, which have negatively impacted revenues and margins and are expected to continue through 2023475 - Cash flow from operations decreased significantly to $345 million in 2022 from $873 million in 2021, primarily due to lower operating results and changes in deferred income taxes and working capital558 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, where a 1% change impacts equity by $27 million, and interest rate changes on $2.488 billion variable-rate debt, affecting income by $25 million annually - The company has significant exposure to foreign currency risk As of December 31, 2022, a hypothetical 1% change in foreign currency exchange rates would impact shareholders' equity by approximately $27 million164 - The company is subject to interest rate risk on its $2.488 billion of variable-rate debt A 100 basis-point (1%) increase or decrease in interest rates would result in an annualized pre-tax impact of approximately $25 million to the Consolidated Statements of Operations and Cash Flows347 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and notes, along with PricewaterhouseCoopers LLP's unqualified auditor's report, highlighting goodwill impairment as a critical audit matter - The consolidated financial statements for the fiscal years ended December 31, 2022, 2021, and 2020 are included, along with the report of the independent registered public accounting firm, PricewaterhouseCoopers LLP165640 - The auditor's report identifies the goodwill impairment assessment for the Vision Care, Ophthalmic Pharmaceuticals, and Surgical reporting units as a critical audit matter due to the significant management judgment involved in estimating their fair values669701 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - Not applicable350 Item 9A. Controls and Procedures Management concluded the company's disclosure controls were effective as of December 31, 2022, with Section 404 compliance required from fiscal year 2023, and no material changes in Q4 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022352 - The company is not yet required to provide management's assessment of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act This will be required for the annual report for the year ending December 31, 2023323 - No changes in internal control over financial reporting occurred during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, these controls325 Item 9B. Other Information The company reports no other information for this item - None326 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable326 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement329 - The company has adopted a Code of Conduct applicable to its senior financial officers, which is available on its website330 Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement291 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement292331 Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement292 Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement332 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists consolidated financial statements and exhibits filed with the Form 10-K, including separation agreements and the Credit Agreement, with all financial statement schedules omitted - This item lists the consolidated financial statements and all exhibits filed with the report335 - All financial statement schedules are omitted because they are not applicable or the required information is included in the financial statements or notes293297 - Key exhibits filed include the Master Separation Agreement with BHC, the new Credit Agreement, and the 2022 Omnibus Incentive Plan301 Item 16. Form 10-K Summary The company reports no summary for this item - None298