Advanced Medical Optics (EYE)

FACE="Times New Roman" SIZE="2">The Company recognizes revenue when it is realized or realizable in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, which requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the customer or services have been rendered;
(3) the price is fixed or determinable; and (4) collectability is reasonably assured. The Company records revenue from eye care and cataract/implant product sales when title and risk of ownership have been transferred to the customer,
which is typically upon delivery to the customer, with the exception of intraocular lenses distributed on a consignment basis, which is upon notification of implantation in a patient. The Company uses judgment when determining whether collection is
reasonably assured and relies on a number of factors, including past transaction history with the customer and management evaluations of the credit worthiness of the customer. When the Company determines that collection is not reasonably assured, it
defers revenue until such time that collection is reasonably assured.

The Company sells its laser vision correction products to customers
under contractual arrangements which contain multiple deliverables. The Company evaluates whether the separate deliverables in each arrangement can be unbundled. These contractual arrangements typically include a laser system, a license and related
per procedure fees associated with disposables (treatment key cards or patient interfaces) and training. For these sales, the Company applies the residual value method in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, which requires the allocation of the total arrangement consideration less the fair value of the undelivered elements. Systems sold to direct customers include installation and system revenue from such
sales is recognized after the installation has been completed. The Company also utilizes third-party distributors who are responsible for all marketing, sales, installation, training and warranty labor costs. Accordingly, revenue associated with
sales to distributors is recognized when title and risk of loss has been transferred to the distributor in accordance with the terms of the related distribution agreement. The Company recognizes revenues from the sale of disposables to all customers
upon shipment as it has no continuing obligations or involvement subsequent to shipment.

The Company also offers extended warranty
contracts, which are separately sold to non-distributor customers. Revenue is recorded on a straight-line basis over the period of the extended contracts, which is generally one year.