Bausch & Lomb Provides Update on Internal Investigation Related to Brazil Subsidiary and Its Impact on Third Quarter 2005 Results; Will Restate Financial Results for Prior Periods

Bausch & Lomb (NYSE:BOL) today provided an update on theinvestigation, previously reported on October 26, 2005, intoallegations of improper conduct by management of its Braziliansubsidiary, BL Industria Otica Ltda. (BLIO) and tax assessmentsagainst BLIO by Brazilian taxing authorities that related to severalprior years. The Company has concluded, based on the investigation,that certain prior-period financial statements will be required to berestated. In addition, the Company has preliminarily identified amaterial weakness in its controls over financial reporting relating todetection and prevention of local management's fraudulent override ofBrazil tax reporting controls. Bausch & Lomb also announced today thatthe Audit Committee of its Board of Directors has commenced anindependent investigation into revenue recognition practices in itsKorean subsidiary. Information provided on each of these matters ispresented below.

Brazil Matters

On October 26, 2005, the Company reported preliminary results ofoperations for the third quarter and nine months ended September 24,2005, pending the results of an investigation into allegations ofimproper conduct by management of the Company's Brazilian subsidiary,BL Industria Otica Ltda., and past tax assessments against BLIO byBrazilian taxing authorities. BLIO accounted for approximately $20million in net sales in 2004, which is less than one percent of Bausch& Lomb's consolidated revenues.

As described in the October 26 release, in September of 2005, theAudit Committee of the Board of Directors commenced an independentinvestigation into allegations of misconduct by the management ofBLIO, which had been reported to the Company's senior management by aBLIO employee pursuant to the Company's established complianceprogram. The Audit Committee engaged the law firm of Cahill Gordon &Reindel LLP to assist with the investigation. Bausch & Lomb alsovoluntarily reported these matters to the staff of the NortheastRegional Office of the Securities and Exchange Commission, whichcommenced an informal inquiry into the matter.

The Audit Committee's independent investigation determined thatthe general manager, the controller and other employees of BLIO, inviolation of Company policies, engaged in improper management andaccounting practices, including, among other things, themischaracterization of approximately $600,000 in expenses to fund anapproximately $1.5 million unauthorized local pension arrangement forthe benefit of themselves and other members of local management, theavoidance of Brazilian payroll tax obligations, and the misuse ofCompany assets for personal benefit. As noted in the October 26release, Bausch & Lomb has terminated the employment of the BLIOgeneral manager and BLIO controller.

Also as a result of the Audit Committee's investigation, it waslearned that certain Brazilian tax authorities have made taxassessments relating to or arising from Brazilian VAT, socialcontribution, income and certain import-related taxes against BLIO forunpaid taxes totaling approximately $5 million, interest ofapproximately $7 million, plus approximately $21 million in claimedpenalties which relate back to various earlier periods. Theseassessments include approximately $19 million in penalties arisingfrom tax-credit transactions involving BLIO and third parties, allegedby Brazilian tax authorities to have been fraudulently structured andimplemented. Appropriate reserves relating to these assessments werenot reflected by BLIO in its subsidiary financial statements, asrequired by the Company's established policies and procedures. In itsOctober 26 release, the Company indicated that, based on itsassessments, in consultation with outside tax counsel, of theoutstanding Brazil tax matters, it was recording a reserve in theCompany's third quarter financial statement of approximately $22million, yielding an after-tax charge of $19.6 million. The Companyalso cautioned in the October 26 release that there could be noassurance that the reserve for these tax matters would not be requiredto be materially increased or recorded in a different period.

The Audit Committee's independent investigation to date has notfound any evidence indicating that anyone outside of BLIO was aware ofor involved in the misconduct uncovered by the investigation, and itfound evidence indicating that BLIO's former general manager andcontroller caused misleading records to be created in order to preventBausch & Lomb's senior management and its auditors from detecting thismisconduct.

In the October 26 release, and in subsequent public announcementsdated November 3 and November 30, 2005, the Company indicated that itwould consider, in consultation with its independent publicaccountants, PricewaterhouseCoopers, LLP, whether any restatement ofprior-period financial statements would be required under generallyaccepted accounting principles with respect to the BLIO matters, andthat it would complete its required assessment of the Company'sinternal control over financial reporting, and whether there has beenany material weakness in the Company's internal controls.

The Audit Committee's investigation of the BLIO matters issubstantially complete. On December 22, 2005, the Board of Directors,on recommendation of the Audit Committee and management, concludedthat the Company should restate certain previously issued financialstatements, as described below.

Restatement of Financial Information

The Company expects to restate its financial results for thefiscal years ended 2000, 2001, 2002, 2003, 2004, as well as the firstand second quarters of 2005. Accordingly, the financial statementscontained in the following Company filings with the Securities andExchange Commission should no longer be relied upon:

-- Annual Report on Form 10-K for the year ended December 25, 2004;

-- Quarterly Report on Form 10-Q for the quarterly period ended March 26, 2005; and

-- Quarterly Report on Form 10-Q for the quarterly period ended June 25, 2005.

The estimated earnings impact (in millions except per shareamounts) on the interim 2005 periods, and each of the years from 2000through 2004 is as set forth in the table of estimated restatementimpacts included in this news release, though there can be noassurance that these current estimates will not be required to bematerially adjusted when the restated financial statements are filed.

The restated financial statements will be included in theCompany's Annual Report on Form 10-K/A for its fiscal year endedDecember 25, 2004 and the Quarterly Reports on Form 10-Q/A for theperiods ended March 26, 2005, and June 25, 2005, when these are filed.The Company also expects to file its delayed Quarterly Report on Form10-Q for the period ended September 24, 2005, pending completion ofthe Audit Committee's continuing independent investigation into theKorea matters described below.

Accounting for the BLIO Matters

As previously reported on October 26, 2005, in connection with theAudit Committee investigation of the BLIO matters, the Company learnedthat certain Brazilian tax authorities have made tax assessmentsrelating to or arising from Brazilian VAT, social contribution, incomeand certain import-related taxes against BLIO for a total ofapproximately $33 million in unpaid taxes, interest and claimedpenalties which relate back to various earlier periods, as describedabove. In addition, the Company learned that BLIO had failed to complywith local payroll tax obligations. The Company has conducted afurther review of these tax matters, and has determined that anafter-tax accrual of $26.1 million (at September 2005 exchange rates)is appropriate. This after-tax accrual reflects an increase ofapproximately $6 million from the $19.6 million after-tax charge whichthe Company had reported in the October 26 release. This increase isprimarily attributable to the Company's further evaluation of theoutstanding tax assessments identified above, plus a subsequentpayment of approximately $1 million against the previouslyunquantified payroll taxes and penalties, which the Company madevoluntarily in November 2005. The Company continues to believe it hasgrounds on which to reduce certain of these outstanding Brazilian taxassessments and intends to raise them within the appeal processprovided by the Brazilian tax system.

Also in connection with the Audit Committee investigation of theBLIO matters, it appears that recognition of all adjustments relatingto or arising from Brazilian VAT, social contribution, payroll, incomeand certain import-related taxes against BLIO for unpaid taxes,interest and claimed penalties which relate back to various earlierperiods, would be material to fiscal 2005 (i.e., Q3 quarter-to-date2005, Q3 year-to-date 2005 and projected fiscal year 2005) and tocertain prior periods. As such, the Company has determined that it isrequired to restate the Company's financial statements for certainprior periods to account properly for the impact of the BLIO taxmatters. The approximate estimated impact of the Brazil matters onprior fiscal periods is summarized in the table of estimatedrestatement impacts included herein, though there can be no assurancethat these current estimates will not be required to be materiallyadjusted when the restated financial statements are filed.

Of the $26.1 million after tax accrual related to the BLIOmatters, approximately $400 thousand relates to the third quarter of2005. Accordingly, Bausch & Lomb's third quarter GAAP net earnings areexpected to be approximately $19.2 million higher than the previouslyreported preliminary amounts, reflecting the reallocation of BLIOreserves into prior periods. As with the other estimated restatementimpacts included herein, there can be no assurance that theseestimates will not be required to be materially adjusted when therestated financial statements are filed.

Accounting Estimates and Accrual Reconciliations

Current accounting practice requires that when a restatement ofpreviously filed financial statements is appropriate for any reason,the Company also review all accounting entries, includingout-of-period adjustments, made in the periods covered by therestatement and correct such entries at the time of the restatement.Accordingly, the Company has reviewed other unrelated accountingentries made in the periods covered by the expected restatement anddetermined that certain entries, while not individually or in theaggregate material to the periods in which they were recorded or tothe relevant prior periods, in light of the expected restatement, arenow required to be recorded in the prior periods to which they relate.Correcting these items is expected to result in adjustments toreported income of the Company as set forth in the table of estimatedrestatement impacts included herein, though there can be no assurancethat these current estimates will not be required to be materiallyadjusted when the restated financial statements are filed. Inaddition, application of 2005 year-end procedures could result inadditional out-of-period entries being identified and recorded in theprior periods to which they relate.
ESTIMATED RESTATEMENT IMPACT

The estimated earnings impact (in millions except per share amounts)
on all impacted periods is as set forth below:


Total Net
Income
Change As
a
Percentage
Net Income Net of
As Income Previously
Previously Brazil Other As Reported
Fiscal Period Reported Matters Items Restated Net Income
------------- ---------- ------- ----- -------- ----------

Six Months Ended June
25, 2005 $79.6 $(0.6) $(0.9) $78.1 (1.9%)
Second Quarter Ended
June 25, 2005 45.0 (0.3) - 44.7 (0.7%)
First Quarter Ended
March 26, 2005 34.5 (0.2) (1.0) 33.3 (3.4%)
Year Ended December 25,
2004 159.6 (0.7) - 158.9 (0.4%)
Year Ended December 27,
2003 125.5 (5.9) (4.0) 115.6 (7.9%)
Year Ended December 28,
2002 72.5 (6.6) (3.7) 62.2 (14.1%)
Year Ended December 29,
2001 21.2 (5.6) 1.3 16.9 (20.2%)
Year Ended December 30,
2000 83.4 (2.1) 0.6 81.9 (1.8%)


Diluted
Earnings Diluted
Per Share Earnings
As Per
Previously Brazil Other Share As
Fiscal Period Reported Matters Items Restated
-----------------------------------------------------------

Six Months Ended June
25, 2005 $1.44 $(0.01)$(0.02) $1.41
Second Quarter Ended
June 25, 2005 0.81 (0.01) - 0.80
First Quarter Ended
March 26, 2005 0.63 - (0.02) 0.61
Year Ended December 25,
2004 2.93 (0.01) - 2.92
Year Ended December 27,
2003 2.34 (0.11) (0.08) 2.15
Year Ended December 28,
2002 1.34 (0.12) (0.07) 1.15
Year Ended December 29,
2001 0.39 (0.10) 0.02 0.31
Year Ended December 30,
2000 1.52 (0.04) 0.01 1.49

Section 404 of the Sarbanes-Oxley Act

In 2005, as in 2004, the Company has undergone a comprehensiveeffort to comply with Section 404 of the Sarbanes-Oxley Act of 2002("Section 404") and plans to issue the results of these efforts uponfiling its Annual Report on Form 10-K for the fiscal year endedDecember 31, 2005 (the "10-K"). The Company's Section 404 complianceefforts included documenting, evaluating the design, and testing theeffectiveness of its internal control over financial reporting.

A material weakness is a control deficiency, or combination ofcontrol deficiencies, that results in more than a remote likelihoodthat a material misstatement of the annual or interim financialstatements will not be prevented or detected. In connection with theBLIO investigation, the Company has preliminarily identified amaterial weakness relating to detection and prevention of localmanagement's fraudulent override of Brazil tax reporting controls.This has led to the untimely identification and resolution of certaintax accounting matters with respect to BLIO and has resulted in theabove-described restatement of the previously issued financialstatements. The Company has taken and will take specific actions toaddress this situation, including (i) terminating the employment ofBLIO's general manager and its controller, (ii) enhancing centraloversight of tax reporting in Brazil and other small non-U.S.operations, including by enhancing third-party annual reviews ofsubsidiary tax returns and accounts, and (iii) changing therelationship of the operational finance organization to a directreporting relationship to the Company Controller. In addition, it isexpected that items (ii) and (iii) above will enhance controls inother Company operations. Further, management believes thatimprovements it has made to its communication, investigation andresolution of whistleblower activities as well as the communication ofits Code of Conduct, fosters a culture that encourages those withconcerns about such management override to bring those to theattention of Bausch & Lomb senior management.

The Company continues to address the situation described above andmanagement believes these measures will be sufficient to remediatesuch a material weakness. However, as a result of the preliminaryidentification of this material weakness in late 2005, managementcannot provide assurance that this material weakness will beremediated by the time management concludes its testing and assessmentof internal control over financial reporting for the year endingDecember 31, 2005.

The Company continues to assess its findings and has not reached aconclusion as to whether there are likely to be any other materialweaknesses to report under Section 404. Since management has notcompleted its testing and evaluation of the Company's internal controlover financial reporting and the control deficiencies identified todate in 2005, and in light of the pending Audit Committeeinvestigation described below, the Company's management may ultimatelyidentify additional control deficiencies as being material weaknesses.The Company will conclude its analyses and report its findings when itfiles its Annual Report on Form 10-K for the period ending December31, 2005.

In addition, in connection with the expected filing of the Form10-K/A and Form 10-Q/A's, the Company will formally conclude on theeffect of the restatements as it relates to the Company's previouslyreported assessments of the effectiveness of its internal control overfinancial reporting as of December 25, 2004. As noted above, based onthe BLIO investigation commenced in September 2005, the company haspreliminarily identified a material weakness relating to detection andprevention of management fraud that likely existed on December 25,2004, the date as of which management previously reported on itsassessment of internal controls. As a result, the Company's previousconclusion as of December 25, 2004 - which was based on the proceduresthen performed and the information then known to it - that is internalcontrol over financial reporting was effective should no longer berelied upon. The Company will conclude its analysis and report itsfindings when it files an Amended Annual Report on Form 10-KA for theperiod ended December 25, 2004.

Management and the Company's Audit Committee discussed withPricewaterhouseCoopers LLP, the Company's independent registeredpublic accounting firm, the matters disclosed above.PricewaterhouseCoopers has not audited the proposed adjustments andestimates of earnings impacts from the expected restatement set forthin this news release.

Korea Investigation

On October 26, 2005, in connection with the Company's ongoingefforts to enhance its ethics and compliance program and to addressthe issues raised by the Audit Committee's investigation of the BLIOmatters, Ronald L. Zarrella, the Company's chairman and chiefexecutive officer, sent a communication to all Bausch & Lomb employeesin which he reminded them of Bausch & Lomb's ethical standards andexpectations and encouraged employees to continue to use all availablechannels of communication to report any possible violations of Companypolicies.

Thereafter, in late November 2005, following employee reportsregarding possibly improper sales practices in the Company's Koreansubsidiary (Bausch & Lomb Korea Co. Ltd.), the Audit Committeecommenced an independent investigation into revenue recognitionpractices in the Korean subsidiary. This subsidiary accounted forapproximately $33 million in net sales in 2004. This investigationalso has been voluntarily reported to the Northeast Regional Office ofthe Securities and Exchange Commission.

The Audit Committee investigation is in its early stages andtherefore it is not possible at this time to predict its outcome orthe timing of its conclusion. As was the case with the nowsubstantially completed investigation of the BLIO matters, the Companywill consider, in consultation with PricewaterhouseCoopers, whetherany additional adjustment to prior-period financial statements wouldbe required under GAAP as a result of the Korean subsidiaryinvestigation, and, as noted above, will also assess whether theultimate findings of the Korean subsidiary investigation indicate anycontrol deficiencies that constitute a material weakness in theCompany's internal controls of financial reporting.

This news release contains, among other things, certain statementsof a forward-looking nature relating to future events or the futurebusiness performance of Bausch & Lomb. Such statements involve anumber of risks and uncertainties including, without limitation, thoseconcerning global and local economic, political and sociologicalconditions; currency exchange rates; government pricing changes andinitiatives with respect to healthcare products; changes in laws andregulations relating to the Company's products and the import andexport of such products; product development and rationalization;enrollment and completion of clinical trials; the ability of theCompany to obtain regulatory approvals; the outcome of litigation; theoutcome of the Audit Committee's continuing independent investigationsdescribed in this news release; the outcome of PriceWaterhouseCoopers'quarterly review process in connection with the filing of theCompany's Quarterly Report on Form 10-Q for the third quarter offiscal 2005; the filing of the Company's 10-Q for that quarter; theCompany's evaluation of whether any restatement with respect to thematters described in this release would be required under generallyaccepted accounting principles; the success of product introductions;the possibility that the market for the sale of certain products andservices may not develop as expected; the financial well-being of keycustomers, development partners and suppliers; the successfulexecution of marketing strategies; continued efforts in managing andreducing costs and expenses; the successful repatriation of fundsunder the American Jobs Creation Act of 2004; the successfulcompletion and integration of business acquisitions; the Company'ssuccess in introducing and implementing its enterprise-wideinformation technology initiatives, including the corresponding impacton internal controls and reporting; the Company's success in theprocess of management testing, including evaluation of results;continued positive relations with third party financing sources andthe risk factors listed from time to time in the Company's SECfilings, including but not limited to the Current Report on Form 8-K,dated June 14, 2002 and the Form 10-Q for the quarter ended June 25,2005.

Bausch & Lomb is the eye health company, dedicated to perfectingvision and enhancing life for consumers around the world. Its corebusinesses include soft and rigid gas permeable contact lenses andlens care products, and ophthalmic surgical and pharmaceuticalproducts. The Bausch & Lomb name is one of the best known and mostrespected healthcare brands in the world. Founded in 1853, the Companyis headquartered in Rochester, New York. Bausch & Lomb's 2004 revenueswere $2.2 billion; it employs approximately 12,400 people worldwideand its products are available in more than 100 countries. Moreinformation about the Company can be found on the Bausch & Lomb Website at www.bausch.com. Copyright Bausch & Lomb Incorporated.