Rogers 2010 Annual Report Download - page 58

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
62 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
5. ACCOUNTING POLICIES AND NON-GAAP MEASURES
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
We measure the success of our strategies using a number of key
performance indicators, which are outlined below. The following key
performance indicators are not measurements in accordance with
Canadian or U.S. GAAP and should not be considered as an alternative
to net income or any other measure of performance under Canadian or
U. S. GAA P.
Subscriber Counts
We determine the number of subscribers to our services based on active
subscribers. A wireless subscriber is represented by each identifiable
telephone number. A cable subscriber is represented by a dwelling unit.
In the case of multiple units in one dwelling, such as an apartment
building, each tenant with cable service, whether invoiced individually
or having services included in his or her rent, is counted as one
subscriber. Commercial or institutional units, such as hospitals or hotels,
are each considered to be one subscriber. When subscribers are
deactivated, either voluntarily or involuntarily for non-payment, they are
considered to be deactivations in the period the services are discontinued.
Wireless prepaid subscribers are considered active for a period of 180
days from the date of their last revenue-generating usage.
We report wireless subscribers in two categories: postpaid and prepaid.
Postpaid includes voice-only subscribers, data-only subscribers, as well
as subscribers with service plans integrating both voice and data, while
prepaid includes voice-only subscribers.
Internet, Rogers Home Phone and RBS subscribers include only those
subscribers with service installed, operating and on billing and excludes
those subscribers who have subscribed to the service but for whom
installation of the service was still pending.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any particular
month, subscriber churn for Wireless represents the number of
subscribers deactivating in the month divided by the aggregate number
of subscribers at the beginning of the month. When used or reported
for a period greater than one month, subscriber churn represents the
monthly average of the subscriber churn for the period.
Average Revenue Per User
ARPU is calculated on a monthly basis. For any particular month, ARPU
represents monthly revenue divided by the average number of
subscribers during the month. In the case of Wireless, ARPU represents
monthly network revenue divided by the average number of subscribers
during the month. ARPU, when used in connection with a particular
type of subscriber, represents monthly revenue generated from those
subscribers divided by the average number of those subscribers during
the month. When used or reported for a period greater than one
month, ARPU represents the monthly average of the ARPU calculations
for the period. We believe ARPU helps to identify trends and to indicate
whether we have been successful in attracting and retaining higher
value subscribers.
Operating Expenses
Operating expenses are segregated into three categories for assessing
business performance:
• Costofsales,whichiscomprisedofwirelessequipmentcosts,Rogers
Retail merchandise and depreciation of Rogers Retail rental assets,
as well as cost of goods sold by The Shopping Channel;
• Salesandmarketingexpenses,whichrepresentthecoststoacquire
new subscribers (other than those related to equipment), such as
advertising, commissions paid to third parties for new activations,
remuneration and benefits to sales and marketing employees, as
well as direct overheads related to these activities and the costs of
operating the Rogers Retail store locations; and
• Operating,generalandadministrativeexpenses,whichincludeall
other expenses incurred to operate the business on a day-to-day basis
and service existing subscriber relationships, including retention
costs, inter-carrier payments to roaming partners and long-distance
carriers, network maintenance costs, programming related costs, the
CRTC contribution levy, Internet and e-mail services and printing and
production costs.
In the wireless and cable industries in Canada, the demand for services
continues to grow and the variable costs, such as commissions paid for
subscriber activations, as well as the fixed costs of acquiring new
subscribers, are significant. Fluctuations in the number of activations of
new subscribers from period-to-period and the seasonal nature of both
wireless and cable subscriber additions result in fluctuations in sales
and marketing expenses and accordingly, in the overall level of
operating expenses. In our Media business, sales and marketing
expenses may be significant to promote publishing, radio and television
properties, which in turn attract advertisers, viewers, listeners and
readers.
Operating Profit and Operating Profit Margin
We define operating profit as net income before depreciation and
amortization, interest expense, income taxes and non-operating items,
which include impairment losses on goodwill, intangible assets and
other long-term assets, foreign exchange gains (losses), loss on
repayment of long-term debt, debt issuance costs, change in fair value
of derivative instruments, and other income. Operating profit is a
standard measure used in the communications industry to assist in
understanding and comparing operating results and is often referred
to by our peers and competitors as EBITDA (earnings before interest,
taxes, depreciation and amortization) or OIBDA (operating income
before depreciation and amortization). We believe this is an important
measure as it allows us to assess our ongoing businesses without the
impact of depreciation or amortization expenses as well as non-
operating factors. It is intended to indicate our ability to incur or service
debt, invest in PP&E and allows us to compare us to our peers and
competitors who may have different capital or organizational
structures. This measure is not a defined term under Canadian GAAP or
U. S. GAA P.
We calculate operating profit margin by dividing operating profit by
total revenue, except in the case of Wireless. For Wireless, operating
profit margin is calculated by dividing operating profit by network
revenue. Network revenue is used in the calculation, instead of total
revenue, because network revenue better reflects Wireless’ core
business activity of providing wireless services. Refer to the section
entitled “Supplementary Information: Non-GAAP Calculations” for
further details on this Wireless, Cable and Media calculation.
Adjusted Operating Profit, Adjusted Operating Profit Margin,
Adjusted Net Income, and Adjusted Basic and Diluted Net Income
Per Share
We have included certain non-GAAP financial measures that we believe
provide useful information to management and readers of this MD&A
in measuring our financial performance. These measures, which include
adjusted operating profit, adjusted operating profit margin, adjusted
net income and adjusted basic and diluted net income per share, do not
have a standardized meaning under GAAP and, therefore, may not be
comparable to similarly titled measures presented by other publicly
traded companies, nor should they be construed as an alternative to
other financial measures determined in accordance with GAAP. We
define adjusted operating profit as operating profit less: (i) the impact
of the one-time non-cash charge resulting from the introduction of a