American Home Shield 2011 Annual Report Download - page 40

Table of Contents
with GAAP or as alternatives to net cash provided by operating activities or any other measures of the Company's cash flow or liquidity. "Adjusted EBITDA"
means net income (loss) before: income (loss) from discontinued operations; provision (benefit) for income taxes; other expense; gain (loss) on
extinguishment of debt; interest expense; interest and net investment income; and depreciation and amortization expense; as well as adding back interest and
net investment income, residual value guarantee charge and non-cash trade name impairment. "Comparable Operating Performance" is calculated by adding
back to Adjusted EBITDA an amount equal to the non-cash stock-based compensation expense and non-cash effects on Adjusted EBITDA attributable to the
application of purchase accounting in connection with the Merger.
The Company believes Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences
caused by variations in capital structures (affecting net interest income and expense), taxation and the age and book depreciation of facilities and equipment
(affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. In addition, the Company
excludes residual value guarantee charges that do not result in additional cash payments to exit the facility at the end of the lease term. The Company uses
Comparable Operating Performance as a supplemental measure to assess the Company's performance because it excludes non-cash stock-based compensation
expense and non-cash effects on Adjusted EBITDA attributable to the application of purchase accounting in connection with the Merger. The Company
presents Comparable Operating Performance because it believes that it is useful for investors, analysts and other interested parties in their analysis of the
Company's operating results.
Charges relating to stock-based compensation expense and the impact of purchase accounting are non-cash and the exclusion of the impact of these items
from Comparable Operating Performance allows investors to understand the current period results of operations of the business on a comparable basis with
previous periods and, secondarily, gives the investors added insight into cash earnings available to service the Company's debt. We believe this to be of
particular importance to the Company's public investors, which are debt holders. The Company also believes that the exclusion of the purchase accounting
and non-cash stock-based compensation expense may provide an additional means for comparing the Company's performance to the performance of other
companies by eliminating the impact of differently structured equity-based, long-term incentive plans (although care must be taken in making any such
comparison, as there may be inconsistencies among companies in the manner of computing similarly titled financial measures).
Adjusted EBITDA and Comparable Operating Performance are not necessarily comparable to other similarly titled financial measures of other
companies due to the potential inconsistencies in the methods of calculation.
Adjusted EBITDA and Comparable Operating Performance have limitations as analytical tools, and should not be considered in isolation or as
substitutes for analyzing the Company's results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA and Comparable Operating Performance do not reflect changes in, or cash requirements for, the Company's working capital
needs;
Adjusted EBITDA and Comparable Operating Performance do not reflect the Company's interest expense, or the cash requirements necessary to
service interest or principal payments on the Company's debt;
Adjusted EBITDA and Comparable Operating Performance do not reflect the Company's tax expense or the cash requirements to pay the
Company's taxes;
Adjusted EBITDA and Comparable Operating Performance do not reflect historical cash expenditures or future requirements for capital
expenditures or contractual commitments;
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