Bausch and Lomb, Inc (a)

1065 Words Nov 4th, 2008 5 Pages
1. What is the impact of the December 1993 shipments of conventional lenses to Bausch and Lomb 1993 financial statements? Is the impact significant?

The impact was:-
i) Increased revenue by $22M
ii) Reduced inventory by 1.8 million pair. Based on the COGS of 45%, this could mean a reduction in inventory of close to $10M.
iii) There is very little increase in SG&A as not much was spend in terms of sales effort.
iv) AR increased significantly with some of the promissory notes are payable in June 1994 (6 months after sale)
v) Probably increase marketing, promotional and expenses related to discounts in the subsequent year due to “Premier Vision” plan.

This impact is significant.
From the statements, B&L reported a 13% YoY increase
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They only need to manage the 30+ distributors instead of a larger number of tier 1 customers.
The disadvantages of the new distribution and sales strategy are as follows:
- B&L faces a higher risk of losing the main clients for the conventional lens as the company no longer deals directly with the main clients. The erosion of the sales of conventional lens for B&L might hasten as a result.
- The profit margins for the conventional lens are likely to decrease as the margins will need to be passed on to the distributors selling to the high-volume.
- Based on the market trend, it is likely the demand for the disposable lens will increase at the expense of conventional lens. Therefore, the hope to increase the sales through the distributors and the introduction of ‘frequent flyers’ scheme is unlikely to yield much result.
- The risk of defaults on their payments by the distributors has increased as they are forced to hold a much higher inventory of conventional lens.
- Higher credit limits given to the distributors also implies a high possibility of decrease in B&L’s operational cash flow (increase in AR)
- High risk of huge inventory returns from the distributors if they are not able to sell in reasonable timeframe. This will increase huge sales return in B&L books in the following year.
- The sudden increase in…

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