Charter 2003 Annual Report Download - page 6

04.
Use of Non-GAAP Financial Metrics
Charter Communications, Inc. (the Company) uses certain measures that are not defined by GAAP (Generally
Accepted Accounting Principles) to evaluate various aspects of its business. Adjusted EBITDA, un-levered free
cash flow and free cash flow are non-GAAP financial measures and should be considered in addition to, not as
a substitute for, net cash flows from operating activities reported in accordance with GAAP. These non-GAAP
terms as defined by Charter may not be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as income from operations before special charges, non-cash depreciation and
amortization, impairment of franchises, gain on sale of system, option compensation expense and unfavorable
contracts and other adjustments. As such, it eliminates the significant level of non-cash depreciation and
amortization expense that results from the capital-intensive nature of our businesses and intangible assets
recognized in business combinations as well as other non-cash or non-recurring items, and is unaffected by our
capital structure or investment activities. Adjusted EBITDA is a liquidity measure used by Company manage-
ment and the Board of Directors to measure our ability to fund operations and our financing obligations. For this
reason, it is a significant component of Charter’s annual incentive compensation program. However, a limitation
of this measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets
used in generating revenues and the cash cost of financing for the Company. Company management evaluates
these costs through other financial measures. Un-levered free cash flow is defined as adjusted EBITDA less
purchases of property, plant and equipment. This is an important measure as it takes into account the period
cost associated with capital expenditures used to upgrade, extend and maintain our plant without regard to our
leverage structure. Free cash flow is defined as un-levered free cash flow less interest on cash pay obligations.
It can also be computed as net cash flows from operating activities, less capital expenditures and special
charges, adjusted for the change in operating assets and liabilities, net of acquisitions. As such, it is unaffected
by fluctuations in working capital levels from period to period. The Company believes that adjusted EBITDA,
un-levered free cash flow and free cash flow provide information useful to investors in assessing our ability to
service our debt, fund continued growth, and make additional investments with internally generated funds.
In addition, adjusted EBITDA generally correlates to the amount utilized under the Company’s various credit
facilities, senior notes, and senior discount notes for its leverage ratio covenants (all such documents have been
previously filed with the United States Securities and Exchange Commission). Adjusted EBITDA, as presented, is
reduced for management fees in the amounts of $74 million and $71 million for the years ended December 31,
2003 and 2002, respectively, which amounts are added back for the purposes of leverage covenants. As of
December 31, 2003, Charter and its subsidiaries were in compliance with their debt covenants.
(a) Fully diluted shares outstanding, assuming conversion of all exchangeable securities, were 718,914,542 and 769,098,211 as of December 31, 2003 and 2002, respectively. See the “Organizational Structure” section for
additional information related to fully diluted shares outstanding.
(b) Interest on cash pay obligations excludes accretion of original issue discounts on certain debt securities and amortization of deferred financing costs that are reflected as interest expense in our statement of operations.
FINANCIAL SUMMARY:
(dollars in millions)
Improvement Improvement %
Year Ended December 31, 2003 2002 over prior year over prior year
Revenues $ 4,819 $ 4,566 $ 253 5.5%
Adjusted EBITDA $ 1,927 $ 1,796 $ 131 7.3%
Un-levered free cash flow $ 1,073 $ (371) $1,444
Free cash flow $ (70) $ (1,479) $1,409 95.3%
Total assets $ 21,364 $ 22,384
Long-term debt $ 18,647 $ 18,671
Capital expenditures $ 854 $ 2,167
Class A & B common shares outstanding(a) 295,088,606 294,586,830
Employees 15,500 18,600
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES:
(dollars in millions)
Year Ended December 31, 2003 2002
Revenues $4,819 $4,566
Less: Costs and expenses
Programming costs 1,249 1,166
Advertising sales 88 87
Service 615 554
General and administrative 833 810
Marketing 107 153
Operating costs and expenses 2,892 2,770
Adjusted EBITDA 1,927 1,796
Less: Purchases of property, plant and equipment (854) (2,167)
Un-levered free cash flow 1,073 (371)
Less: Interest on cash pay obligations(b) (1,143) (1,108)
Free cash flow (70) (1,479)
Purchase of property, plant and equipment 854 2,167
Special charges, net (21) (36)
Other, net (13) (1)
Change in operating assets and liabilities 15 97
Net cash flows from operating activities $ 765 $ 748