Cogeco 2005 Annual Report Download - page 18

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Cogeco Cable Inc. 2005
Adoption of New Accounting Standards
Fiscal 2004
Revenue Recognition
During the third quarter of fiscal 2004, Cogeco Cable adopted
the CICA’s Emerging Issues Committee Abstracts 141 and 142 issued
in December 2003, regarding the timing of revenue recognition and
certain related costs and the classification of certain items such as
revenue, expense or capitalized costs. Consequently, Cogeco Cable
adopted the following changes:
• Installation revenue is now deferred and amortized over the
average life of a customer’s subscription, which is four years.
Previously, these revenue were recognized immediately
as they were considered 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 revenue
generated by the reconnect activity, which are included in
installation revenue, and amortized over the average life of
a customer’s subscription, which is four years. Previously, these
costs, which include materials, direct labour 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 HSI customer base that used to be recorded as a deferred
charge is now recorded as an operating cost.
As a result of the above changes, Operating Income was adjusted
downward by $8 million in fiscal 2004. The adjustments related
to the reversal of capitalized advertising expense and reconnection
costs amounted to $3.7 million and $1.2 million in fiscal 2004.
Cogeco Cable has decided to apply these changes retroactively
to enhance the comparability of its financial disclosure. The changes,
relating to revenue recognition, had the following impact on our
financial results and cash flow for fiscal 2004 and financial position
as at August 31, 2004 presented in the table below.
Other Accounting Standards
Information on the adoption of other accounting standards during
fiscal 2004, which did not have a significant impact on the financial
statements of the Corporation, except for Amortization of long-term
assets described in the “Fixed Charges” section on page 22
of the MD&A, is presented in Note 1c) on page 34.
Year ended August 31, 2004
Before After
(in thousands of dollars, except per share data and percentages) adoption adoption
$$
Revenue 519,753 526,480
Operating Income 211,224 203,246
Operating Margin 40.6% 38.6%
Amortization 136,072 140,214
Income taxes 43,831 37,269
Net loss (26,636) (32,194)
Basic and diluted net loss per share (0.67) (0.81)
Capital expenditures and increase in deferred charges 106,893 101,244
Free Cash Flow 45,863 43,534
As at August 31, 2004
Before After
(in thousands of dollars) adoption adoption
$$
Fixed assets 739,547 687,960
Deferred charges 34,273 48,293
Deferred and prepaid income 16,070 32,437
Future income tax liabilities 214,296 195,523
Retained earnings 69,041 33,880
Management’s Discussion and Analysis