Charter 2004 Annual Report Download - page 150

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Unaudited Reconciliation of Non-GAAP Measures to GAAP Measures:
(dollars in millions)
Year Ended December 31, 2004 2003
Revenues $ 4,977 $ 4,819
Less: Operating costs and expenses
Programming costs (1,319) (1,249)
Advertising sales (98) (88)
Service (663) (615)
General and administrative (849) (833)
Marketing (122) (107)
Operating costs and expenses (3,051) (2,892)
Adjusted EBITDA 1,926 1,927
Less: Purchases of property, plant and equipment (924) (854)
Un-levered free cash flow 1,002 1,073
Less: Interest on cash pay obligations (1,346) (1,143)
Free cash flow (344) (70)
Purchase of property, plant and equipment 924 854
Special charges, net (19) (21)
Other, net (21) (13)
Change in operating assets and liabilities (68) 15
Net cash flows from operating activities $ 472 $ 765
Financial Summary
(dollars in millions)
Year Ended December 31, 2004 2003
Revenues $ 4,977 $ 4,819
Adjusted EBITDA $ 1,926 $ 1,927
Un-levered free cash flow $ 1,002 $ 1,073
Free cash flow $ (344) $ (70)
Total assets $ 17,673 $ 21,364
Long-term debt $ 19,464 $ 18,647
Capital expenditures $ 924 $ 854
Class A & B common shares outstanding 305,253,770 295,088,606
Employees 15,500 15,500
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 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, gain/loss on sale of assets, option compensation
expense, unfavorable contracts and other settlements, and impairment of franchises. As
such, it eliminates the significant 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 unaf-
fected by our capital structure or investment activities. Adjusted EBITDA is a liquidity
measure used by Company management 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, this measure
is limited in 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. We believe this is an important measure as it takes into account the
period costs 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 cash special charges, adjusted for the change in operating assets
and liabilities, net of dispositions. 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 operations, and make additional investments with internally generated funds.
In addition, adjusted EBITDA generally correlates to the leverage ratio calculation under
the Company’s credit facilities or outstanding notes to determine compliance with the
covenants contained in the facilities and notes (all such documents have been previously
filed with the United States Securities and Exchange Commission). Adjusted EBITDA is
reduced for management fees in the amounts of $90 million and $84 million for the years
ended December 31, 2004 and 2003, respectively, which amounts are added back for
the purposes of calculating compliance with leverage covenants. As of December 31,
2004, Charter and its subsidiaries were in compliance with their debt covenants.