Adjustments Related to One-Off Events: S&P Capital IQ makes adjustments to EBITDA by eliminating gains or losses disclosed by companies within operating revenues or expenses related to the following corporate actions and events:

    Merger Charges
    Restructuring Charges
    Impairments of Goodwill
    One-time Sale of Investments
    One-time Sale of Assets
    Asset Writedowns
    In-Process R&D Expenses
    Insurance Settlements
    Legal Settlements

Adjustments Related to Recurring Operating Items of Unusual Magnitude: In addition to the standard eliminations related to one-off gains or losses, S&P Capital IQ also analyzes the overall historical trend and magnitude of certain operating activities that may be of recurring nature in the ordinary course of business for the company but may occasionally have an unusually high magnitude and impact on operating earnings and EBITDA. In such cases, these items are also scrubbed out of EBITDA. Some notable examples include:

Impairment charges of natural resource reserves and properties beyond the usual scale and magnitude for asset-intensive businesses in the relevant industry, such as Oil and Gas, Metals and Mining, etc, when such charges can be linked to unusual one-off market or political events that significantly impact a company’s performance in a specific period Inventory revaluations beyond the usual scale and magnitude for company in the relevant industry, such as Retailers, Homebuilders, etc, when such charges can be linked to unusual one-off market developments or political and demographic events Gains and losses related to proprietary trading and other mark-to-market activities in the relevant industries when the scale of such items is the result of large scale market corrections and crashes of extraordinary nature

Adjustments Related to Recurring Operating Expenses Classified as Depreciation and Amortization (D&A) of Other Assets

There are cases where S&P Capital IQ does not add back certain types of depreciation and amortization to EBIT to arrive at EBITDA. Such D&A is usually not charged against a company’s PP&E assets or acquisition-related Intangibles but against some of the following types of assets:

    Software Development Costs
    Rental Equipment, including fixed assets leased out to clients
    Pre-Publishing Costs

S&P Capital IQ views EBITDA as a proxy for a company’s recurring operating profitability potential rather than a proxy for cash flow from operations. In that sense, some non-cash operating items can and are included in EBITDA if contained in the company's operating expenses. Amortization of deferred charges related to the asset types listed above should always be included in an analysis of a company’s core operations, as failure to reinvest in such short-lived, fast–amortizing assets, has an immediate impact on a company’s operations.

In addition, amortization of deferred financing costs is usually included as a component of financing costs, and, as a result, is not added back to EBIT but simply scrubbed out of operating expenses if incorporated in the overall Depreciation and Amortization account.

Depreciation of airplanes held for operating leases is part of Cost of Goods Sold (COGS). S&P Capital IQ does not add it back for leased out assets. S&P Capital IQ collects Rental Asset Depreciation as Other Amortization as it is more in line with a company's cost of doing business than Property Plant & Equipment (PP&E) depreciation.

Stock-based Compensation is an item that some Analysts prefer to include in EBITDA, while others prefer to exclude. Although the headline Capital IQ EBITDA includes Stock-based Compensation along with other cash compensation items, S&P Capital IQ also calculates a version of EBITDA that excludes Stock-based Compensation to facilitate comparability across periods before and after the adoption of SFAS 123R.

Adjustments Related to Oil & Gas Duty Taxes:

If a company is classified as oil and gas refining, the duty tax is considered an operating item. Other Operating Expense- Total includes exploration/ drilling costs. If in the company's filing it states that the line item Taxes and Duties is "Hydrocarbon extraction duties and other duties and taxes paid . . .” This is considered a normal exploration/drilling cost and it is collected as an operating expense in order to link the cost of production with the revenue generated on the income statement.

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