Management’s Discussion and Analysis of Financial Condition and Results of Operations continued It is management’s intent to provide non-GAAP financial information to enhance the understanding of Verizon’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. We believe that non-GAAP measures provide relevant and useful information, which is used by management, investors and other users of our financial information as well as by our management in assessing both consolidated and segment performance. The non-GAAP financial information presented may be determined or calculated differently by other companies. (dollars in millions) Years Ended December 31, 2017 2016 2015 Consolidated Net Income $ 30,550 $ 13,608 $ 18,375 Add (Less): (Benefit) provision for income taxes (9,956) 7,378 9,865 Interest expense 4,733 4,376 4,920 Other expense (income), net 2,010 1,599 (186) Equity in losses of unconsolidated businesses 77 98 86 Consolidated Operating Income 27,414 27,059 33,060 Add Depreciation and amortization expense 16,954 15,928 16,017 Consolidated EBITDA 44,368 42,987 49,077 Add (Less): Severance, pension and benefit charges (credits) 1,391 2,923 (2,256) Product realignment 463 Gain on spectrum license transactions (270) (142) (254) Net gain on sale of divested businesses (1,774) (1,007) Acquisition and integration related charges 879 Consolidated Adjusted EBITDA $ 45,057 $ 44,761 $ 46,567 The changes in Consolidated Net Income, Consolidated Operating Income, Consolidated EBITDA and Consolidated Adjusted EBITDA in the table above were primarily a result of the factors described in connection with operating revenues and operating expenses. Segment Results of Operations We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products and services, and customer groups, respectively. We measure and evaluate our reportable segments based on segment operating income. The use of segment operating income is consistent with the chief operating decision maker’s assessment of segment performance. Segment earnings before interest, taxes, depreciation and amortization (Segment EBITDA), which is presented below, is a non-GAAP measure and does not purport to be an alternative to operating income (loss) as a measure of operating performance. We believe this measure is useful to management, investors and other users of our financial information in evaluating operating profitability on a more variable cost basis as it excludes the depreciation and amortization expenses related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment operating income (loss). Segment EBITDA margin is calculated by dividing Segment EBITDA by total segment operating revenues. You can find additional information about our segments in Note 12 to the consolidated financial statements. 2017 Annual Report | Verizon Communications Inc. and Subsidiaries 17
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