FairPoint Communications 2013 Annual Report Download - page 49

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47
which also exclude the effect of special items, may be useful to investors in understanding period-to-period operating performance
and in identifying historical and prospective trends that may not otherwise be apparent when relying solely on U.S. GAAP financial
measures. In addition, the non-GAAP measure is useful for investors because it enables them to view performance in a manner
similar to the method used by the Company's management. Adjusted earnings before interest, taxes, depreciation and amortization
("EBITDA") also removes variability related to pension and post-retirement healthcare expenses. The maintenance covenants
contained in the Company's credit facility are based on Consolidated EBITDA, which is consistent with the calculation of Adjusted
EBITDA below.
However, the non-GAAP financial measures, as used herein, are not necessarily comparable to similarly titled measures
of other companies. Furthermore, Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation
from, or as an alternative to, net income or loss, operating income, cash flow or other combined income or cash flow data prepared
in accordance with U.S. GAAP. Because of these limitations, Adjusted EBITDA and related ratios should not be considered as
measures of discretionary cash available to invest in business growth or reduce indebtedness. The Company compensates for these
limitations by relying primarily on its U.S. GAAP results and using Adjusted EBITDA only supplementally.
A reconciliation of Adjusted EBITDA to net (loss) income is provided in the table below (in thousands):
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Net (loss) income $ (93,450) $ (153,294) $ 171,962
Income tax expense (benefit) (90,291) (95,560) 226,613
Interest expense 78,675 67,610 73,128
Depreciation and amortization 282,438 376,614 358,406
Pension expense (1a) 26,221 17,809 12,185
Post-retirement healthcare expense (1a) 54,469 50,875 39,601
Compensated absences (1b) 431 329 (462)
Severance 8,150 6,380 8,006
Reorganization costs (1c) 207 1,335 21,053
Storm expenses (1d) 2,598 3,000 4,040
Other non-cash items (1e) 1,902 3,518 (651,943)
Gain on sale of discontinued operations (10,757) — —
Loss on debt refinancing 6,787 — —
All other allowed adjustments, net (1f) (2,350) (675) (1,055)
Adjusted EBITDA $ 265,030 $ 277,941 $ 261,534
(1) For purposes of calculating Adjusted EBITDA (in accordance with the definition of Consolidated EBITDA in the
Company's credit agreement), the Company adjusts net (loss) income for interest, income taxes, depreciation and
amortization, in addition to:
a) the add-back of aggregate pension and post-retirement healthcare expense,
b) the add-back (or subtraction) of the adjustment to the compensated absences accrual to eliminate the impact of
changes in the accrual,
c) the add-back of costs related to the reorganization, including professional fees for advisors and consultants. See
note (4) "Reorganization Under Chapter 11—Financial Reporting in Reorganization—Reorganization Items" to our
consolidated financial statements in "Item 8. Financial Statement and Supplementary Data" included elsewhere in
this Annual Report,
d) the add-back of costs and expenses, including those imposed by regulatory authorities, with respect to casualty
events, acts of God or force majeure to the extent they are not reimbursed from proceeds of insurance,
e) the add-back of other non-cash items, except to the extent they will require a cash payment in a future period,
including impairment charges, and
f) the add-back (or subtraction) of other items, including facility and office closures, labor negotiation expenses,
non-cash gains/losses, non-operating dividend and interest income and other extraordinary gains/losses.