13. Business Segment Information

U.S. Cellular and TDS Telecom are billed for all services they receive from TDS, consisting primarily of information processing, accounting and finance, and general management services. Such billings are based on expenses specifically identified to U.S. Cellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to U.S. Cellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if U.S. Cellular and TDS Telecom operated on a stand-alone basis.

Financial data for TDS’ reportable segments for the three and nine month periods ended, or as of September 30, 2015 and 2014, is as follows. See Note 1 — Basis of Presentation for additional information.

						TDS Telecom
Three Months Ended or as of September 30, 2015			U.S. Cellular				Wireline			Cable				HMS				TDS Telecom Eliminations				TDS Telecom Total				Corporate, Eliminations and Other				Total
(Dollars in thousands)
Operating revenues
	Services		$		895,960		$		174,579	$		43,741	$			30,428	$			(1,184)	$			247,564	$			(5,757)	$			1,137,767
	Equipment and product sales				172,946				477			119				51,214				–				51,810				11,275				236,031
		Total operating revenues		1,068,906				175,056			43,860				81,642				(1,184)				299,374				5,518				1,373,798
Cost of services (excluding Depreciation, amortization
	and accretion expense reported below)				198,982				63,696			19,545				21,163				(1,125)				103,279				830				303,091
Cost of equipment and products					287,256				515			25				43,081				–				43,621				6,174				337,051
Selling, general and administrative					374,585				50,062			14,346				12,446				(59)				76,795				(2,296)				449,084
Depreciation, amortization and accretion					152,369				41,228			8,530				6,790				–				56,548				1,847				210,764
(Gain) loss on asset disposals, net					2,618				1,845			425				22				–				2,292				9				4,919
(Gain) loss on sale of business and other exit costs, net					(643)				(105)			–				–				–				(105)				189				(559)
(Gain) loss on license sales and exchanges, net					(23,986)				–			–				–				–				–				–				(23,986)
Operating income (loss)					77,725				17,815			989				(1,860)				–				16,944				(1,235)				93,434
Equity in earnings of unconsolidated entities					39,674				2			–				–				–				2				94				39,770
Interest and dividend income					9,299				624			10				6				–				640				(322)				9,617
Interest expense					(21,121)				193			109				(565)				–				(263)				(13,659)				(35,043)
Other, net					78				(48)			–				(79)				–				(127)				(7)				(56)
Income (loss) before income taxes					105,655				18,586			1,108				(2,498)				–				17,196				(15,129)				107,722
Income tax expense (benefit) (1)					40,634																			8,278				(3,585)				45,327
Net income (loss)					65,021																			8,918				(11,544)				62,395
Add back:
Depreciation, amortization and accretion					152,369				41,228			8,530				6,790				–				56,548				1,847				210,764
(Gain) loss on asset disposals, net					2,618				1,845			425				22				–				2,292				9				4,919
(Gain) loss on sale of business and other exit costs, net					(643)				(105)			–				–				–				(105)				189				(559)
(Gain) loss on license sales and exchanges, net					(23,986)				–			–				–				–				–				–				(23,986)
Interest expense					21,121				(193)			(109)				565				–				263				13,659				35,043
Income tax expense (benefit) (1)					40,634																			8,278				(3,585)				45,327
Adjusted EBITDA (2)			$		257,134		$		61,361	$		9,954	$			4,879	$			–	$			76,194	$			575	$			333,903

Investments in unconsolidated entities			$		347,709		$		3,806	$		–	$			–	$			–	$			3,806	$			34,638	$			386,153
Total assets			$		6,938,384		$		1,322,359	$		571,836	$			299,101	$			–	$			2,193,296	$			185,678	$			9,317,358
Capital expenditures			$		134,816		$		38,354	$		13,023	$			5,090	$			–	$			56,467	$			2,425	$			193,708

						TDS Telecom
Three Months Ended or as of September 30, 2014			U.S. Cellular			Wireline			Cable				HMS				TDS Telecom Eliminations				TDS Telecom Total				Corporate, Eliminations and Other				Total
(Dollars in thousands)
Operating revenues
	Services		$		851,063	$		177,650		$		28,519		$		27,806		$		(980)		$		232,995		$		(2,586)		$		1,081,472
	Equipment and product sales				149,356			425				–				39,737				–				40,162				9,033				198,551
		Total operating revenues			1,000,419			178,075				28,519				67,543				(980)				273,157				6,447				1,280,023
Cost of services (excluding Depreciation, amortization
	and accretion expense reported below)				199,750			64,072				12,651				19,442				(926)				95,239				2,194				297,183
Cost of equipment and products					307,862			829				–				33,819				–				34,648				6,699				349,209
Selling, general and administrative					397,545			46,627				9,948				12,724				(54)				69,245				(1,776)				465,014
Depreciation, amortization and accretion					148,952			41,358				6,171				6,726				–				54,255				2,322				205,529
Loss on impairment of assets					–			–				–				84,000				–				84,000				–				84,000
(Gain) loss on asset disposals, net					7,947			743				626				(2)				–				1,367				(21)				9,293
(Gain) loss on sale of business and other exit costs, net				(10,283)			(2,201)				–				–				–				(2,201)				7,694				(4,790)
Operating income (loss)					(51,354)			26,647				(877)				(89,166)				–				(63,396)				(10,665)				(125,415)
Equity in earnings of unconsolidated entities					35,971			2				–				–				–				2				108				36,081
Interest and dividend income					3,572			569				(1)				(23)				–				545				409				4,526
Interest expense					(13,514)			598				32				(343)				–				287				(13,943)				(27,170)
Other, net					95			71				–				(86)				–				(15)				(11)				69
Income (loss) before income taxes					(25,230)			27,887				(846)				(89,618)				–				(62,577)				(24,102)				(111,909)
Income tax expense (benefit) (1)					(1,459)																			(2,937)				13,686				9,290
Net income (loss)					(23,771)																			(59,640)				(37,788)				(121,199)
Add back:
Depreciation, amortization and accretion					148,952			41,358				6,171				6,726				–				54,255				2,322				205,529
Loss on impairment of assets					–			–				–				84,000				–				84,000				–				84,000
(Gain) loss on asset disposals, net					7,947			743				626				(2)				–				1,367				(21)				9,293
(Gain) loss on sale of business and other exit costs, net					(10,283)			(2,201)				–				–				–				(2,201)				7,694				(4,790)
Interest expense					13,514			(598)				(32)				343				–				(287)				13,943				27,170
Income tax expense (benefit) (1)					(1,459)			–				–				–				–				(2,937)				13,686				9,290
Adjusted EBITDA (2)			$		134,900	$		67,189		$		5,919		$		1,449		$		–		$		74,557		$		(164)		$		209,293

Investments in unconsolidated entities			$		296,900	$		3,804		$		–		$		–		$		–		$		3,804		$		34,744		$		335,448
Total assets			$		6,257,075	$		1,385,524		$		543,731		$		255,519		$		–		$		2,184,774		$		198,699		$		8,640,548
Capital expenditures			$		142,452	$		34,243		$		7,598		$		9,800		$		–		$		51,641		$		1,132		$		195,225

						TDS Telecom
Nine Months Ended or as of September 30, 2015			U.S. Cellular				Wireline			Cable				HMS				TDS Telecom Eliminations				TDS Telecom Total				Corporate, Eliminations and Other				Total
(Dollars in thousands)
Operating revenues
	Services		$		2,548,544		$		525,683	$		131,767	$			88,311	$			(3,222)	$			742,539	$			(9,575)	$			3,281,508
	Equipment and product sales				461,274				1,478			277				129,878				–				131,633				27,371				620,278
		Total operating revenues		3,009,818				527,161			132,044				218,189				(3,222)				874,172				17,796				3,901,786
Cost of services (excluding Depreciation, amortization
	and accretion expense reported below)				585,935				188,727			59,342				63,145				(3,011)				308,203				2,752				896,890
Cost of equipment and products					779,228				1,675			100				108,777				–				110,552				17,702				907,482
Selling, general and administrative					1,106,524				144,931			40,735				36,105				(211)				221,560				(5,530)				1,322,554
Depreciation, amortization and accretion					450,035				124,440			26,109				19,798				–				170,347				8,061				628,443
(Gain) loss on asset disposals, net					12,268				3,373			(561)				(21)				–				2,791				(11)				15,048
(Gain) loss on sale of business and other exit costs, net					(113,825)				(3,159)			–				–				–				(3,159)				(12,947)				(129,931)
(Gain) loss on license sales and exchanges, net					(146,884)				–			–				–				–				–				–				(146,884)
Operating income (loss)					336,537				67,174			6,319				(9,615)				–				63,878				7,769				408,184
Equity in earnings of unconsolidated entities					109,729				15			–				–				–				15				79				109,823
Interest and dividend income					25,834				1,726			23				29				–				1,778				507				28,119
Interest expense					(61,239)				784			352				(1,550)				–				(414)				(41,139)				(102,792)
Other, net					274				(81)			3				(65)				–				(143)				11				142
Income (loss) before income taxes					411,135				69,618			6,697				(11,201)				–				65,114				(32,773)				443,476
Income tax expense (benefit) (1)					161,214																			27,083				(9,517)				178,780
Net income (loss)					249,921																			38,031				(23,256)				264,696
Add back:
Depreciation, amortization and accretion					450,035				124,440			26,109				19,798				–				170,347				8,061				628,443
(Gain) loss on asset disposals, net					12,268				3,373			(561)				(21)				–				2,791				(11)				15,048
(Gain) loss on sale of business and other exit costs, net					(113,825)				(3,159)			–				–				–				(3,159)				(12,947)				(129,931)
(Gain) loss on license sales and exchanges, net					(146,884)				–			–				–				–				–				–				(146,884)
Interest expense					61,239				(784)			(352)				1,550				–				414				41,139				102,792
Income tax expense (benefit) (1)					161,214																			27,083				(9,517)				178,780
Adjusted EBITDA (2)			$		673,968		$		193,488	$		31,893	$			10,126	$			–	$			235,507	$			3,469	$			912,944

Investments in unconsolidated entities			$		347,709		$		3,806	$		–	$			–	$			–	$			3,806	$			34,638	$			386,153
Total assets			$		6,938,384		$		1,322,359	$		571,836	$			299,101	$			–	$			2,193,296	$			185,678	$			9,317,358
Capital expenditures			$		334,942		$		90,517	$		36,575	$			19,341	$			–	$			146,433	$			5,570	$			486,945

						TDS Telecom
Nine Months Ended or as of September 30, 2014			U.S. Cellular				Wireline			Cable				HMS				TDS Telecom Eliminations				TDS Telecom Total				Corporate, Eliminations and Other				Total
(Dollars in thousands)
Operating revenues
	Services		$		2,548,149		$		534,880	$		73,506	$			82,757	$			(1,959)	$			689,184	$			(3,440)	$			3,233,893
	Equipment and product sales				335,854				1,409			–				115,830				–				117,239				25,391				478,484
		Total operating revenues		2,884,003				536,289			73,506				198,587				(1,959)				806,423				21,951				3,712,377
Cost of services (excluding Depreciation, amortization
	and accretion expense reported below)				567,488				192,777			35,000				57,689				(1,820)				283,646				8,495				859,629
Cost of equipment and products					850,314				1,793			–				98,161				–				99,954				18,599				968,867
Selling, general and administrative					1,197,361				140,855			22,611				39,935				(139)				203,262				(1,038)				1,399,585
Depreciation, amortization and accretion					465,042				125,921			15,089				20,195				–				161,205				8,768				635,015
Loss on impairment of assets					–				–			–				84,000				–				84,000				–				84,000
(Gain) loss on asset disposals, net					16,774				1,502			1,116				76				–				2,694				158				19,626
(Gain) loss on sale of business and other exit costs, net					(27,694)				(2,201)			–				–				–				(2,201)				20,816				(9,079)
(Gain) loss on license sales and exchanges, net					(91,446)				–			–				–				–				–				–				(91,446)
Operating income (loss)					(93,836)				75,642			(310)				(101,469)				–				(26,137)				(33,847)				(153,820)
Equity in earnings of unconsolidated entities					106,166				6			–				–				–				6				2,026				108,198
Interest and dividend income					6,029				1,744			1				19				–				1,764				1,970				9,763
Interest expense					(42,712)				1,939			67				(1,203)				–				803				(41,866)				(83,775)
Other, net					281				(78)			–				93				–				15				(17)				279
Income (loss) before income taxes					(24,072)				79,253			(242)				(102,560)				–				(23,549)				(71,734)				(119,355)
Income tax expense (benefit) (1)					746																			12,571				(6,041)				7,276
Net income (loss)					(24,818)																			(36,120)				(65,693)				(126,631)
Add back:
Depreciation, amortization and accretion					465,042				125,921			15,089				20,195				–				161,205				8,768				635,015
Loss on impairment of assets					–				–			–				84,000				–				84,000				–				84,000
(Gain) loss on asset disposals, net					16,774				1,502			1,116				76				–				2,694				158				19,626
(Gain) loss on sale of business and other exit costs, net					(27,694)				(2,201)			–				–				–				(2,201)				20,816				(9,079)
(Gain) loss on license sales and exchanges, net					(91,446)				–			–				–				–				–				–				(91,446)
Interest expense					42,712				(1,939)			(67)				1,203				–				(803)				41,866				83,775
Income tax expense (benefit) (1)					746				–			–				–				–				12,571				(6,041)				7,276
Adjusted EBITDA (2)			$		381,316		$		202,536	$		15,896	$			2,914	$			–	$			221,346	$			(126)	$			602,536

Investments in unconsolidated entities			$		296,900		$		3,804	$		–	$			–	$			–	$			3,804	$			34,744	$			335,448
Total assets			$		6,257,075		$		1,385,524	$		543,731	$			255,519	$			–	$			2,184,774	$			198,699	$			8,640,548
Capital expenditures			$		375,960		$		84,511	$		20,998	$			23,179	$			–	$			128,688	$			3,856	$			508,504

(1)	Income tax expense (benefit) is not provided at the individual segment level for Wireline, Cable and HMS. TDS calculates income tax expense for “TDS Telecom Total”.

(2)	Adjusted earnings before interest, taxes, depreciation, amortization and accretion (“Adjusted EBITDA”) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above. Adjusted EBITDA excludes these items in order to show operating results on a more comparable basis from period to period. From time to time, TDS may also exclude other items from Adjusted EBITDA if such items help reflect operating results on a more comparable basis. TDS does not intend to imply that any of such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, discrete gains and losses, and other items as indicated above.