Charter 2005 Annual Report Download - page 166

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Financial Summary
(dollars in millions)
Year Ended December 31, 2005 2004
Revenues $ 5,254 $ 4,977
Adjusted EBITDA $ 1,927 $ 1,926
Un-levered free cash flow $ 839 $ 1,002
Free cash flow $ (696) $ (344)
Total assets $ 16,431 $ 17,673
Long-term debt $ 19,388 $ 19,464
Capital expenditures $ 1,088 $ 924
Class A & B common shares outstanding 416,254,671 305,253,770
Employees 17,200 15,500
Unaudited Reconciliation of Non-GAAP Measures to GAAP Measures:
(dollars in millions)
Year Ended December 31, 2005 2004
Revenues $ 5,254 $ 4,977
Less: Operating costs and expenses
Programming costs (1,417) (1,319)
Service (775) (663)
Advertising sales (101) (98)
General and administrative (889) (845)
Marketing (145) (122)
Operating costs and expenses (3,327) (3,051)
Adjusted EBITDA 1,927 1,926
Less: Purchases of property, plant and equipment (1,088) (924)
Un-levered free cash flow 839 1,002
Less: Interest on cash pay obligations (1,535) (1,346)
Free cash flow (696) (344)
Purchase of property, plant and equipment 1,088 924
Special charges, net (7) (19)
Other, net (12) (21)
Change in operating assets and liabilities (113) (68)
Net cash flows from operating activities $ 260 $ 472
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 unaffected 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 facili-
ties 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 $123 million and $87 million for the years
ended December 31, 2005 and 2004, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of December 31, 2005, Charter and its subsidiaries were in compliance with
their debt covenants.