Rogers 2011 Annual Report Download - page 69

MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted Operating Profit, Adjusted Operating Profit Margin,
Adjusted Net Income, and Adjusted Basic and Diluted Earnings
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 operating profit, adjusted operating profit, adjusted
operating profit margin, adjusted net income, adjusted basic and
diluted earnings per share, and free cash flow 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) stock-
based compensation expense (recovery); (ii) integration, restructuring
and acquisition expenses; (iii) settlement of pension obligations; and
(iv) other items, net. In addition, adjusted net income and adjusted
earnings per share excludes loss on repayment of long-term debt,
impairment of assets and the related income tax impacts of the above
items.
We believe that these non-GAAP financial measures may provide for a
more effective analysis of our operating performance. In addition, the
items mentioned above could potentially distort the analysis of trends
due to the fact that they are volatile and can vary widely from
company-to-company and can impair comparability. The exclusion of
these items does not mean that they are unusual, infrequent or
non-recurring.
We use these non-GAAP measures internally to make strategic
decisions, forecast future results and evaluate our performance from
period-to-period and compare to forecasts on a consistent basis. We
believe that these measures present trends that are useful in
managing the business, and to investors and analysts in enabling
them to assess the underlying changes in our business over time.
Adjusted operating profit and adjusted operating profit margins,
which are reviewed regularly by management and our Board of
Directors, are also useful in assessing our performance and in making
decisions regarding the ongoing operations of the business and the
ability to generate cash flows.
These non-GAAP measures should be viewed as a supplement to, and
not a substitute for, our results of operations reported under IFRS or
Canadian GAAP. A reconciliation of these non-GAAP financial
measures to operating profit, net income and earnings per share is
included in the section entitled “Supplementary Information:
Non-GAAP Calculations”.
Additions to PP&E
Additions to PP&E include those costs associated with acquiring and
placing our PP&E into service. Because the communications business
requires extensive and continual investment in equipment, including
investment in new technologies and expansion of geographical reach
and capacity, additions to PP&E are significant and management
focuses continually on the planning, funding and management of
these expenditures. We focus more on managing additions to PP&E
than we do on managing depreciation and amortization expense
because additions to PP&E have a direct impact on our cash flow,
whereas depreciation and amortization are non-cash accounting
measures required under IFRS or Canadian GAAP.
The additions to PP&E before related changes to non-cash working
capital represent PP&E that we actually took title to in the period.
Accordingly, for purposes of comparing our PP&E outlays, we believe
that additions to PP&E before related changes to non-cash working
capital best reflect our cost of PP&E in a period, and provide a more
accurate determination for period-to-period comparisons.
CRITICAL ACCOUNTING POLICIES
This MD&A has been prepared with reference to our 2011 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with IFRS. The Audit Committee of the
Board reviews our accounting policies, reviews all quarterly and
annual filings, and recommends approval of our annual financial
statements to the Board. For a detailed discussion of our accounting
policies, see Note 2 to the 2011 Audited Consolidated Financial
Statements. In addition, a discussion of new accounting standards
adopted by us and critical accounting estimates are discussed in the
sections “New Accounting Standards” and “Critical Accounting
Estimates”, respectively.
Revenue Recognition
Revenue is categorized into the following types, the majority of
which are recurring in nature on a monthly basis from ongoing
relationships, contractual or otherwise, with our subscribers:
• Monthly subscriber fees in connection with wireless and wireline
services, cable, telephony, Internet services, rental of equipment,
network services and media subscriptions are recorded as revenue
on a pro rata basis as the service is provided;
• Revenue from airtime, data services, roaming, long-distance and
optional services, pay-per-use services, video rentals and other sales
of products are recorded as revenue as the services or products are
delivered;
• Revenue from the sale of wireless and cable equipment is recorded
when the equipment is delivered and accepted by the independent
dealer or subscriber in the case of direct sales. Equipment subsidies
related to new and existing subscribers are recorded as a reduction
of equipment revenues;
• Installation fees and activation fees charged to subscribers do not
meet the criteria as a separate unit of accounting. As a result, in
Wireless, these fees are recorded as part of equipment revenue
and, in the case of Cable, are deferred and amortized over the
related service period. The related service period for Cable ranges
from 26 to 48 months, based on subscriber disconnects, transfers of
service and moves. Incremental direct installation costs related to
reconnects are deferred to the extent of deferred installation fees
and amortized over the same period as these related installation
fees. New connect installation costs are capitalized to PP&E and
amortized over the useful life of the related assets;
• Advertising revenue is recorded in the period the advertising airs
on our radio or television stations, is featured in our publications,
or is displayed on our digital properties;
• Monthly subscription revenues received by television stations for
subscriptions from cable and satellite providers are recorded in the
month in which they are earned;
• Blue Jays’ revenue from home game admission and concessions is
recognized as the related games are played during the baseball
season. Revenue from radio and television agreements is recorded
at the time the related games are aired. The Blue Jays also receive
revenue from the Major League Baseball Revenue Sharing
Agreement, which distributes funds to and from member clubs,
based on each club’s revenues. This revenue is recognized in the
season in which it is earned, when the amount is estimable and
collectibility is reasonably assured;
• Discounts provided to customers related to combined purchases of
Wireless, Cable and Media products and services are charged
directly to the revenue for the products and services to which they
relate; and
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 65