Bausch & Lomb Hit on Restatement

Shares of Bausch & Lomb(BOL Quote) were roughed up Friday after the company detailed years of accounting chicanery at a Brazilian subsidiary.

The stock was recently down $5.01, or 6.3%, to $74.06. More than 2 million shares had traded 90 minutes into the session, more than three times the normal daily volume.

Late Thursday, Bausch said it had discovered a material weakness in its financial controls in a review of its Brazilian subsidiary, which is known as BLIO. Several managers were alleged to have engaged in financial shenanigans including diverting company money into a local pension for their own benefit, Bausch & Lomb said.

"The audit committee's independent investigation to date has not found any evidence indicating that anyone outside of BLIO was aware of or involved in the misconduct uncovered by the investigation, and it found evidence indicating that BLIO's former general manager and controller caused misleading records to be created in order to prevent Bausch & Lomb's senior management and its auditors from detecting this misconduct," the parent company said Thursday.

Bausch & Lomb plans to restate financial results going back five years. The most significant change is a $26 million accrual it will record to correct various tax-related issues turned up in the internal investigation. Most of the charge will be recorded in previously reported financial statements for 2001, 2002 and 2003.

That the accounting malfeasance occurred constitutes a material weakness in the company's financial reporting under the Sarbanes Oxley law on corporate governance, the company said.

"The company continues to address the situation described above, and management believes these measures will be sufficient to remediate such a material weakness. However, as a result of the preliminary identification of this material weakness in late 2005, management cannot provide assurance that this material weakness will be remediated by the time management concludes its testing and assessment of internal control over financial reporting for the year ending December 31, 2005."

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