Verizon Wireless 2014 Annual Report Download - page 17

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Selling, general and administrative expense increased during 2014
compared to 2013 primarily due to non-operational charges, primarily
severance, pension and benet charges, recorded in 2014 as compared
to non-operational credits, primarily severance, pension and benefit
credits,recordedin2013(see“OtherItems”).
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 2014 com-
pared to 2013 primarily due to a decrease in net depreciable assets at our
Wireline segment, partially oset by an increase in depreciable assets at
our Wireless segment.
2013 Compared to 2012
Cost of Services and Sales
Cost of services and sales decreased during 2013 compared to 2012
primarily due to a decrease in cost of equipment sales, decreased data
roaming, a decline in cost of data services and a decrease in network
connection costs at our Wireless segment, as well as a decrease in costs
related to customer premise equipment, a decline in access costs and the
net eect of storm-related insurance recoveries at our Wireline segment.
Partially osetting these decreases were higher content costs associated
withcontinuedFiOSsubscribergrowthandprogramminglicensefee
increases at our Wireline segment, as well as increases in cost of network
services at our Wireless segment.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased during 2013 com-
pared to 2012 primarily due to the non-operational credits recorded in
2013 and declines in employee costs at our Wireline segment as well as
thenon-operationalchargesrecordedin2012(see“OtherItems”).This
decrease was partially oset by higher sales commission expense at our
Wireless segment.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2013 com-
pared to 2012 primarily due to an increase in net depreciable assets at
our Wireless segment and an increase in amortization expense at our
Wireline segment. These increases were partially oset by a decline in net
depreciable assets at our Wireline segment.
Non-operational (Credits) Charges
Non-operational (credits) charges included in operating expenses (see
"Other Items") were as follows:
(dollars in millions)
Years Ended December 31, 2014 2013 2012
Severance, Pension and Benet
(Credits) Charges
Selling, general and administrative expense $ 7,507 $ (6,232) $ 7,186
Gain on Spectrum License Transactions
Selling, general and administrative expense (707) (278) –
Litigation Settlements
Selling, general and administrative expense – – 384
Other Costs
Cost of services and sales 27 – 40
Selling, general and administrative expense 307 – 236
334 – 276
Total non-operating (credits) charges
included in operating expenses $ 7,134 $ (6,510) $ 7,846
See “Other Items” for a description of these and other non-
operational items.
Consolidated Operating Income and EBITDA
Consolidated earnings before interest, taxes, depreciation and amortiza-
tion expenses (Consolidated EBITDA) and Consolidated Adjusted EBITDA,
which are presented below, are non-GAAP measures and do not purport
to be alternatives to operating income as a measure of operating perfor-
mance.Managementbelievesthatthesemeasuresareusefultoinvestors
and other users of our nancial information in evaluating operating prof-
itability on a more variable cost basis as they exclude the depreciation
and amortization expense related primarily to capital expenditures and
acquisitions that occurred in prior years, as well as in evaluating oper-
ating performance in relation to our competitors. Consolidated EBITDA
is calculated by adding back interest, taxes, depreciation and amortiza-
tion expense, equity in earnings of unconsolidated businesses and other
income and (expense), net to net income.
Consolidated Adjusted EBITDA is calculated by excluding the eect of
non-operational items and the impact of divested operations from the
calculationofConsolidatedEBITDA.Managementbelievesthatthismea-
sure provides additional relevant and useful information to investors and
other users of our nancial data in evaluating the eectiveness of our
operations and underlying business trends in a manner that is consis-
tentwithmanagement’sevaluationofbusinessperformance.See“Other
Items”foradditionaldetailsregardingthesenon-operationalitems.
Operatingexpensesincludepensionandbenetrelatedcreditsand/
or charges based on actuarial assumptions, including projected dis-
count rates and an estimated return on plan assets. These estimates are
updated in the fourth quarter to reect actual return on plan assets and
updated actuarial assumptions. The adjustment has been recognized in
the income statement during the fourth quarter or upon a remeasure-
ment event pursuant to our accounting policy for the recognition of
actuarialgains/losses.
Itismanagement’sintenttoprovidenon-GAAPnancialinformationto
enhancetheunderstandingofVerizon’sGAAPnancialinformation,and
it should be considered by the reader in addition to, but not instead of,
the nancial statements prepared in accordance with GAAP. Each non-
GAAP nancial 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. The non-GAAP nancial information presented may
be determined or calculated dierently by other companies.
(dollars in millions)
Years Ended December 31, 2014 2013 2012
Consolidated Operating Income $ 19,599 $ 31,968 $ 13,160
Add Depreciation and amortization
expense 16,533 16,606 16,460
Consolidated EBITDA 36,132 48,574 29,620
Add (Less) Non-operating (credits) charges
included in operating expenses 7,134 (6,510) 7,846
Less Impact of divested operations (12) (43) (56)
Consolidated Adjusted EBITDA $ 43,254 $ 42,021 $ 37,410
The changes in 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.