Cogeco 2004 Annual Report Download - page 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cogeco Cable Inc. 2004 31
1SIGNIFICANT ACCOUNTING POLICIES (continued)
v) Generally accepted accounting principles hierarchy
In June 2003, the CICA issued Handbook section 1100, Generally accepted accounting principles, which establishes standards for finan-
cial reporting in accordance with generally accepted accounting principles and identifies other sources to be consulted in selecting
accounting policies and disclosures when a matter is not dealt with explicitly in the primary source of generally accepted accounting
principles. These new recommendations apply to fiscal years beginning on or after October 1, 2003. The Corporation examined these
new recommendations and concluded that, except for the application of the new accounting policies on revenue recognition, there
was no impact on its financial statements.
vi) Revenue recognition
On December 17, 2003, the Emerging Issues Committee issued EIC-141, Revenue recognition, which provides general interpretative
guidance on the application of CICA 3400, Revenue, and summarizes the principles set forth in “Staff Accounting Bulletin” No. 101
(“SAB 101”) published in the United States. In addition, EIC-141 also provides additional guidance on the capitalization of direct
incremental costs in connection with up-front revenues. At the same time, the committee also issued EIC-142, Revenue arrangements
with multiple deliverables, which addresses how to determine when an arrangement involving multiple deliverables contains more
than one unit of accounting and if so, how the arrangement consideration should be measured and allocated among each separate
unit of accounting.
During fiscal year 2004, the Corporation applied these new recommendations and determined that it has multiple revenue arrangements
comprised of installation services, sales of home terminal devices and related subscription services. Based on the criteria of EIC-142,
the Corporation determined that the sale of home terminal devices is considered a single unit of accounting of a multiple element
arrangement, while installation and related subscription services must be assessed as an integrated package. In addition, certain
direct incremental costs in connection with installation revenues may be deferred over the same term as the related revenue. Accordingly,
the following changes were adopted retroactively:
• Installation revenues are now deferred and amortized over the average life of a customer, which is four years. Previously, these
revenues were recognized immediately as they were considered as a partial recovery of direct selling costs incurred. Upon billing,
the portion of unearned revenue is now recorded as deferred and prepaid income;
• The costs to reconnect customers are now recorded as deferred charges up to a maximum amount not exceeding the revenues
generated by the reconnect activity, which are included in installation revenues, and amortized over the average life of a customer,
which is four years. Previously, these costs, which include materials, direct labor and certain overhead charges were capitalized
to fixed assets and generally amortized over a period of five years;
• Revenue from the sale of home terminal devices at a subsidized price, which were recorded as a partial recovery of costs, are now
recorded as equipment revenue with an equal amount included in operating costs;
• The portion of advertising expense incurred to expand the digital and high-speed Internet customer base that used to be recorded
as deferred charges is now recorded as operating costs.
These changes, relating to revenue recognition, have been applied retroactively and had the following impact on the Corporation’s
financial statements:
Years ended August 31, 2004 2003
Before After Before After
(amounts are in thousands of dollars, except per share data) adoption adoption restatement restatement
$$$$
Revenue 519,753 526,480 479,293 489,194
Operating costs 300,503 315,208 288,080 305,716
Amortization 136,072 140,214 107,158 110,234
Income taxes 43,831 37,269 7,194 4,386
Net income (loss) (26,636) (32,194) 7,879 (124)
Earnings (loss) per share
Basic and diluted (0.67) (0.81) 0.20 (0.00)