Charter 2012 Annual Report Download - page 122

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The Company uses certain measures that are
not defined by Generally Accepted Accounting
Principles (“GAAP”) to evaluate various aspects
of its business. Adjusted EBITDA and free cash
flow are non-GAAP financial measures and
should be considered in addition to, not as a
substitute for, net loss or 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 reconciled to net loss and free cash flow is
reconciled to net cash flows from operating
activities in this annual report.
Adjusted EBITDA is defined as net loss plus net
interest expense, income tax expense, depre-
ciation and amortization, stock compensation
expense, loss on extinguishment of debt, and
other operating expenses, such as special charges
and (gain) loss on sale or retirement of assets.
As such, it eliminates the significant non-cash
depreciation and amor tization expense that
results from the capital-intensive nature of the
Company’s businesses as well as other non-
cash or special items, and is unaffected by the
Company’s capital structure or investment activ-
ities. Adjusted EBITDA is used by management
and the Company’s Board to evaluate the per-
formance of the Company’s business. 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. Management
evaluates these costs through other financial
measures.
Free cash flow is defined as net cash flows from
operating activities, less purchases of property,
plant and equipment and changes in accrued
expenses related to capital expenditures.
The Company believes that Adjusted EBITDA
and free cash flow provide information useful to
investors in assessing Charter’s performance and
its ability to service its debt, fund operations
and make additional investments with internally
generated funds. In addition, Adjusted EBITDA
generally correlates to the leverage ratio calcula-
tion under the Company’s credit facilities or out-
standing notes to determine compliance with the
covenants contained in the credit facilities and
notes (all such documents have been previously
filed with the United States Securities and
Exchange Commission). For the purpose of
calculating compliance with leverage covenants,
we use Adjusted EBITDA, as presented, exclud-
ing certain expenses paid by our operating
subsidiaries to other Charter entities. Our debt
covenants refer to these expenses as manage-
ment fees, which fees were in the amount of
$191 million, $151 million, and $144 million for the
years ended December 31, 2012, 2011, and 2010,
respectively.
In addition to the actual results for the twelve
months ended December 31, 2012, 2011 and 2010,
we have provided pro forma results in this annual
report for the twelve months ended December 31,
2011 and 2010. We believe these pro forma
results facilitate meaningful analysis of the
results of operations. Pro forma results in this
annual report reflect certain acquisitions and
sales of cable systems in 2010 and 2011 as if they
occurred as of January 1, 2010.
F-47
USE OF NON-GAAP FINANCIAL MEASURES