When I read the press release on Friday that aesthetic laser manufacturer Candela (NASDAQ:CLZR) was delaying the filing of its annual report, I found myself shaking my head in a way I usually reserve for wayward children, errant dogs, and misguided politicians.
The reason given for the delay was that Candela's accountant, BDO Seidman, needs more time to complete the company's audit within the tough new strictures of Sarbanes-Oxley, but this is not the first time Candela has delayed its annual report. The laser maker pulled something similar in 2003, but the reasons given were different back then.
At that time, Candela went on to report record earnings and solid profits that showed a company on the move. Sales were growing 31% for the year, and profits had grown more than 400% for the quarter. While the company used similar language in its recently issued contorted release, we know it was used to justify the fact that it was taking market share despite stagnating sales and earnings that were 26% less than last year. And despite promises to supply written proof of its logic just for the asking, the company still hasn't provided me with its numbers, nearly a month after my request.
Without question, Sarbanes-Oxley is a costly, burdensome regulation that proponents say will staunch the flow of accounting scandals that led to the law's creation. Literally hundreds of companies have delayed filing their annual reports as CEOs become responsible for the accuracy of their financial statements. While companies have been required to review their internal controls for decades, Sarbanes-Oxley made management vouch for their accuracy. That's led companies to drill deeper for flaws.
So Candela's delay is not necessarily unique, but it doesn't bode well for what its public accountant will find. Companies reporting delays tend not to be in the best of shape. American Insurance Group (NYSE:AIG) delayed filing its reports several times this year as investigations and allegations swirled around its CEO. Once a robust supermarket chain, Winn-Dixie, now operating under bankruptcy protection, just announced it was delaying filing its annual report so as to restate past earnings. And retailer Saks (NYSE:SKS) delayed its 10-K earlier this year after revealing internal and regulatory investigations.
That's not to say Candela's situation is extremely dire. There's no hint of investigations, bankruptcy, or intrigue. There's nothing to suggest that its delay is nothing more than what it says: The auditor needs more time. In its notice to the SEC, the laser maker says it doesn't anticipate any "significant change in results." But we shouldn't be surprised if the company ultimately announces that there are, in fact, material weaknesses in its financial controls or that expenses related to its royalty agreement with the Regents of the University of California need to be reworked.
Certainly Candela's performance, along with management's promises to investors, has been materially weak. Despite a populace in need of its products and owning technology that should drive sales, Candela has been a laggard to competitors like Palomar Medical Technology (NASDAQ:PMTI) and Cutera (NASDAQ:CUTR). Delays in filing its annual reports are head-shaking distractions to performance that investors just don't need.
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Fool contributor Rich Duprey owns shares of Candela but does not own any of the other stocks mentioned in this article. The Motley Fool has an ironclad disclosure policy.
