CINCINNATI, May 8, 20007 /Businesswire/ -- LCA-Vision,
operating a chain of Lasik clinics under the LasikPlus brand, today
announced that it has filed with the Securities and Exchange Commission
(SEC) an amended earnings from 2002 to 2006 effecting a reduction
in revenues of $48.9 million and a reduction in retained earnings
of $27.4 million. LCA-Vision operates 63 LasikPlus vision correction
centers in 48 markets in 29 states.
"Lifetime warranty programs have always been a concern," says
Glenn Hagele, Executive Director of the Council for Refractive Surgery
Quality Assurance (USAEyes.org), a nonprofit Lasik patient advocacy.
"While it is always good to see a commitment to the patient, one
must ask; whose lifetime?"
On March 9, 2007, LCA-Vision received a comment letter from the
SEC related to a staff review of its 2006 Annual Report on Form
10-K. The single issue raised in this letter addressed the Company's
revenue recognition policy regarding services provided subsequent
to the initial surgical procedure. In most cases, LCA-Vision's base
price laser vision correction surgery includes a one-year acuity
program, which will cover the cost of post-surgical enhancements
should the patient not achieve the desired visual correction during
the initial procedure. In addition, LCA-Vision offers its patients
the option to purchase a lifetime acuity plan. The majority of LCA-Vision
patients purchase the lifetime acuity program.
The Company's historical accounting policy had been to defer revenues
for separately priced extended warranties for those patients expected
to receive treatment under the warranty. Historical data indicates
that approximately 7% of patients received treatment under the warranty.
The accounting for separately priced extended warranties is subject
to Financial Accounting Standards Board (FASB) Technical Bulletin
90-1 (FTB 90-1), Accounting for Separately Priced Extended Warranty
and Product Maintenance Contracts.
Following receipt of the SEC staff comment letter and upon further
examination of the manner in which the Company has historically
accounted for the revenues associated with the lifetime acuity program,
LCA-Vision determined that its accounting for deferred revenues
was not appropriate under FTB 90-1 and resulted in an overstatement
of revenues. Under FTB 90-1, 100% of revenues from separately priced
extended warranties are to be deferred and recognized over the life
of the contract on a straight-line basis unless the Company has
sufficient experience to indicate that the costs to provide the
service will be incurred other than on a straight-line basis.
The Company has sufficient experience to support that future enhancements
will be incurred on other than a straight-line basis. Accordingly,
LCA-Vision has restated its results to reflect the deferral of revenues
associated with its lifetime acuity program as a separately priced
extended warranty under FTB 90-1. LCA-Vision recognized these deferred
revenues in its restated results over the periods in which the future
costs of performing the enhancement procedures are expected to be
incurred. Because the Company's base price generally included the
right to enhancements in the first year, LCA-Vision recognizes these
deferred revenues based on historical enhancement rate patterns
with amortization beginning after the first anniversary of a patient's
surgical date. Under the historical pattern, approximately 51% of
the deferred revenue will be recognized in the second year after
the patient's initial surgery. The following table highlights the
amortization rates in each successive period:
Year after Amortization
Initial Surgery Rate
3 15%
4 13%
5 11%
6 7%
7 3%
In addition to the deferral of revenues under FTB 90-1, LCA-Vision
is also deferring a portion of its costs of service related to professional
fees paid to the attending surgeon. Professional fees are earned
when a procedure is performed. The physician receives no incremental
fee for an enhancement procedure. Accordingly, a portion of the
professional fee paid to the physician relates to the future enhancement
procedures to be performed and qualifies for deferral under FTB
90-1 as a direct and incremental cost of the warranty contract.
LCA-Vision will use the same historical experience to amortize the
deferred revenue and the deferred professional fees.
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