Accounting & Tax

Lasik for Revenue Recognition?

A provider of laser vision correction services has a clearer picture of how to treat revenues from extended warranties.
Stephen TaubApril 19, 2007

LCA-Vision will restate its results for 2004 through 2006 to reflect a change in revenue recognition for separately priced extended warranties.

The provider of laser vision correction services expects to reduce 2006 revenues by about $18 million and net income by about $10 million. The revision also is expected to reduce shareholders’ equity as of year-end 2006 by about $30 million, of which approximately $9 million relates to periods prior to 2004.

LCA-Vision took these steps after receiving a letter on its 2006 annual report, addressing the company’s revenue recognition policy, from the Securities and Exchange Commission. “We have provided the SEC with a response to its comment letter, and we look forward to resolving this issue as soon as is practical,” said chief executive officer Steven C. Straus, in a statement.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

The company’s policy has been to defer revenues for separately priced extended warranties for patients expected to receive treatment under the warranty — historically, 7 percent of patients, according to the company.

LCA-Vision elaborated that under FASB Technical Bulletin 90-1, all revenues from extended warranties must be deferred, then amortized back into income on a straight-line basis. An exception would be if the company has sufficient experience to indicate that the costs to service the warranties would be incurred other than on a straight-line basis.

The company plans to limit or eliminate the use of separately priced extended warranties, said Straus. “Therefore, we expect the impact of the restated financial statements will be to increase revenues and pretax income in future periods as the deferred revenue is amortized back into income,” he said.

4 Powerful Communication Strategies for Your Next Board Meeting