Charter 2013 Annual Report Download - page 131

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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 cash flows from oper-
ating 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 rec-
onciled to net cash flows from operating activi-
ties 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, gain
on derivative instruments, net and other operat-
ing expenses, such as special charges and
(gain) loss on sale or retirement of assets. As
such, it eliminates the significant non-cash
depreciation and amortization 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
activities. Adjusted EBITDA is used by manage-
ment and the Company’s Board to evaluate
the performance of the Company’s business.
However, this measure is limited in that it does
not reflect the periodic costs of certain capital-
ized tangible and intangible assets used in gen-
erating 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 opera-
tions 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
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 used Adjusted EBITDA,
as presented, excluding certain expenses paid
by our operating subsidiaries to other Charter
entities. Our debt covenants refer to these
expenses as management fees which fees were
in the amount of $201 million, $191 million, and
$151 million for the years ended December 31,
2013, 2012, and 2011, respectively.
In addition to the actual results for the twelve
months ended December 31, 2013, 2012 and
2011, we have provided pro forma results in this
annual report for the twelve months ended
December 31, 2013, 2012 and 2011. We believe
these pro forma results facilitate meaningful
analysis of the results of operations. Pro forma
results in this annual report reflect certain acqui-
sitions of cable systems in 2011 and 2013 as if
they occurred as of January 1, 2011.
Use of Non-GAAP Financial Measures
F- 49