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SEC Filings

10-Q
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 10-Q on 10/26/2017
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be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to consolidated net income and net cash flows from operating activities, respectively, below.

Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our 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 our 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 capital expenditures and changes in accrued expenses related to capital expenditures.

Management and Charter’s board of directors use Adjusted EBITDA and free cash flow to assess our performance and 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 our 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 Securities and Exchange Commission (the “SEC”)). 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 were $262 million and $791 million for the three and nine months ended September 30, 2017, respectively, and $231 million and $535 million for the three and nine months ended September 30, 2016, respectively.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
Actual
Consolidated net income
$
92

 
$
250

 
$
498

 
$
3,176

Plus: Interest expense, net
788

 
724

 
2,250

 
1,771

Income tax (benefit) expense
26

 
16

 
99

 
(3,135
)
Depreciation and amortization
2,701

 
2,437

 
7,846

 
4,412

Stock compensation expense
64

 
81

 
198

 
168

Loss on extinguishment of debt

 

 
35

 
110

(Gain) loss on financial instruments, net
(17
)
 
(71
)
 
15

 
(16
)
Other pension (benefits) costs
17

 
(13
)
 
(9
)
 
(533
)
Other, net
148

 
212

 
388

 
786

Adjusted EBITDA
$
3,819

 
$
3,636

 
$
11,320

 
$
6,739

 
 
 
 
 
 
 
 
Net cash flows from operating activities
$
2,908

 
$
2,801

 
$
8,696

 
$
4,815

Less: Purchases of property, plant and equipment
(2,393
)
 
(1,748
)
 
(6,096
)
 
(3,437
)
Change in accrued expenses related to capital expenditures
79

 
(52
)
 
276

 
86

Free cash flow
$
594

 
$
1,001

 
$
2,876

 
$
1,464



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