Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by Generally Accepted Accounting Principles (GAAP) to evaluate various aspects of its business. Adjusted EBITDA,
pro forma adjusted EBITDA, adjusted EBITDA less capital expenditures, and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income (loss) or 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 income (loss) and free cash flow is reconciled to net cash flows
from operating activities in the appendix of this presentation.
Adjusted EBITDA is defined as net income (loss) plus net interest expense, income taxes,
depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on derivative instruments, net and other operating expenses, such as merger and acquisition costs, 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 Companys businesses as well as other non-cash or special items, and is unaffected
by the Companys capital structure or investment activities. 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. These costs are evaluated 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.
Management and the Companys Board use adjusted EBITDA and free
cash flow to assess Charters 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 calculation
under the Companys 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 use 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 $76 million and $64 million for the three months ended March 31, 2015 and 2014, respectively.
reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure, see slide 26.
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