Bausch & Lomb 1999 Annual Report

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.
See the future 33 Bausch & Lomb
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.