57  /  CP 2018 ANNUAL REPORT FX adjusted % changes in operating expenses are discussed in Operating Expenses of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. EBIT is calculated as Net income before Net interest expense and Income tax expense. Adjusted EBIT excludes significant items reported in both Operating income and Other expense (income). Adjusted EBITDA is calculated as Adjusted EBIT plus Other components of net periodic benefit recovery, operating lease expense and Depreciation and amortization. Reconciliation of Net Income to Earnings before interest and tax, Adjusted earnings before interest and tax and Adjusted earnings before interest, tax, depreciation and amortization $^{(1) }$Comparative years' figures have been restated for the retrospective adoption of ASU 2017-07, discussed further in Item 8. Financial Statements and Supplementary Data, Note 2 Accounting changes. 2018 vs. 2017 2017 vs. 2016 (in millions) Reported 2018 Reported 2017 Reported 2016 Variance due to  FX FX Adjusted 2017 FX Adj. % Change Variance due to  FX FX Adjusted 2016 FX Adj. % Change Compensation and benefits (1) $ 1,468 $ 1,309 $ 1,356 $ (1 ) $ 1,308 12 $ (9 ) $ 1,347 (3 ) Fuel 918 677 567 — 677 36 (10) 557 22 Materials 201 190 180 — 190 6 (2 ) 178 7 Equipment rents 130 142 173 — 142 (8) (2) 171 (17) Depreciation and amortization 696 661 640 — 661 5 (3 ) 637 4 Purchased services and other 1,072 1,056 905 (3) 1,053 2 (10) 895 18 Total operating expenses (1) $ 4,485 $ 4,035 $ 3,821 $ (4 ) $ 4,031 11 $ (36 ) $ 3,785 7 For the year ended December 31 (in millions) 2018 2017 2016 2015 2014 Net income as reported $ 1,951 $ 2,405 $ 1,599 $ 1,352 $ 1,476 Add: Net interest expense 453 473 471 394 282 Income tax expense 637 93 553 607 562 EBIT 3,041 2,971 2,623 2,353 2,320 Less significant items (pre-tax): Legal settlement charge — — (25 ) — — Insurance recovery of legal settlement — 10 — — — Charge on hedge roll and de-designation — (13 ) — — — Gain on sale of D&H South — — — 68 — Labour restructuring — — — — 4 Management transition recovery — 51 — — — Impact of FX translation on U.S. dollar-denominated debt (168 ) 186 79 (297 ) (12 ) Early redemption premium on notes — — — (47) — Adjusted EBIT 3,209 2,737 2,569 2,629 2,328 Less: Other components of net periodic benefit recovery 384 274 167 70 137 Operating lease expense (97) (104) (111) (127) (121) Depreciation and amortization (696 ) (661 ) (640 ) (595 ) (552 ) Adjusted EBITDA $ 3,618 $ 3,228 $ 3,153 $ 3,281 $ 2,864