A combination of fungus and potential fraud abroad has infected many investors' view of Bausch & Lomb (NYSE:BOL).
The bleary-eyed eye-care company disappointed shareholders again last week, announcing in an SEC filing on Thursday that it would delay releasing its first-quarter earnings as it continues to look into accounting irregularities at its Asian subsidiaries. These errors have prompted Bausch to drop a total of $26.7 million from previously reported net sales dating back to 2001.
The company reports that its inquiry into practices at its Korean subsidiary, which reported $33 million in net sales in 2004, is now almost complete. Adjustments were also made to reported sales by distributors in Japan, Thailand, and India, as well as revisions to sales-related reserves in China. This global examination comes on the heels of revelations that local management of its Brazilian subsidiary misused company assets, including approximately $2 million in unauthorized pension payments.
It's now been almost a year since Bausch has filed a quarterly or annual financial report. Meanwhile, the U.S. Centers for Disease Control continue to report increasing cases of a fungal eye infection, seemingly linked to the company's ReNu with MoistureLoc contact lens solution. The product, which accounted for $45 million on U.S. sales last year, has been pulled from shelves and faces an uncertain future.
Amid these accounting and product concerns, ratings agency Fitch has now lowered the company's credit ratings to just one notch above junk status.
Eyeing more trouble ahead, Bausch faces potential liability from lawsuits that allege insider trading relating to the Brazilian and Korean investigations, as well as claims focusing on the eye infections. With a future cash crunch looming, the company's $384 million plan to repurchase three issues of outstanding debt, announced earlier this month, does not seem like the wisest decision.
Bausch may eventually represent a contrarian play, since its shares have fallen 35% this year. For now, the company must set things straight by filing its financials and strengthening its operational controls before investors' vision can clear up.
Keep an eye on further Foolishness:
Get a sharper, clearer view of the market with a subscription to Motley Fool Stock Advisor . Get Tom and David Gardner's insight on the best of Wall Street, and swap investing advice with thousands of fellow Fools, with a free 30-day trial subscription.
Fool contributor S.J. Caplan does not own shares of Bausch & Lomb. The Fool's disclosure policy has 20/20 vision.
