Orthodontic Centers Changes Its Accounting Procedures

Article excerpt

Orthodontic Centers of America Inc. yesterday said it is changing its accounting methods for recording revenue, which has been a source of controversy since the Ponte Vedra Beach-based company went public in 1994.

As a result, the company will have to restate its 2000 financial figures to show lower revenue and earnings.

Orthodontic Centers, which operates orthodontist offices across the country, has used an unusual method to record revenue because of the unique nature of its business. Patients are treated on average for a 26-month period and make monthly payments during that time. Much of the work done by the orthodontist -- 24 percent of the total work, the company says -- is performed during the first month of treatment.

Because of that, Orthodontic Centers has maintained a policy of recording revenue equal to 24 percent of the amount the patient will pay over the full 26 months during the first month, even though the company hasn't actually received that much money from the patient.

However, Orthodontic Centers said yesterday that it had been informed by staff members of the Securities and Exchange Commission that its revenue policy does not conform with SEC accounting guidelines issued in December 1999. So the company is changing to a "straight-line" accounting policy in which it will record an equal amount of revenue each month over the length of the contract.

"We think this change greatly simplifies our accounting," said Orthodontic Centers Chief Executive Officer Bart F. Palmisano Sr. in a conference call with analysts.

"We were not in a battle with the SEC," he said. "We felt we had an opportunity here to make some valuable changes and we seized the moment. …