Note 10 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 six month periods ended, or as of June 30, 2017 and 2016, is as follows. See Note 1 — Basis of Presentation for additional information.

					TDS Telecom
Three Months Ended or as of June 30, 2017			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	740	$	180	$	51	$	27	$	(1)	$	258	$	(6)	$	992
	Equipment and product sales			223		–		–		23		–		24		8		255
		Total operating revenues1		963		181		51		51		(1)		281		3		1,247
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			189		65		24		21		(1)		110		(1)		298
Cost of equipment and products				260		1		–		19		–		20		7		287
Selling, general and administrative				351		48		13		10		–		72		(4)		419
Depreciation, amortization and accretion				155		37		11		7		–		55		1		211
(Gain) loss on asset disposals, net				5		–		–		–		–		1		–		6
(Gain) loss on license sales and exchanges, net				(2)		–		–		–		–		–		–		(2)
Operating income (loss)1				5		29		3		(7)		–		25		(2)		28
Equity in earnings of unconsolidated entities				33		–		–		–		–		–		–		33
Interest and dividend income1				2		1		–		–		–		1		1		4
Interest expense				(28)		–		–		(1)		–		(1)		(14)		(43)
Other, net				–		–		–		–		–		–		–		–
Income (loss) before income taxes				12		30		3		(8)		–		25		(15)		22
Income tax expense (benefit)2				–										10		–		10
Net income (loss)				12										15		(15)		12
Add back:
Depreciation, amortization and accretion				155		37		11		7		–		55		1		211
(Gain) loss on asset disposals, net				5		–		–		–		–		1		–		6
(Gain) loss on license sales and exchanges, net				(2)		–		–		–		–		–		–		(2)
Interest expense				28		–		–		1		–		1		14		43
Income tax expense (benefit)2				–										10		–		10
Adjusted EBITDA3			$	198	$	67	$	14	$	–	$	–	$	82	$	–	$	280

Investments in unconsolidated entities			$	414	$	4	$	–	$	–	$	–	$	4	$	34	$	452
Total assets			$	7,077	$	1,200	$	611	$	247	$	–	$	2,059	$	242	$	9,378
Capital expenditures			$	84	$	33	$	12	$	4	$	–	$	49	$	1	$	134

Numbers may not foot due to rounding.

					TDS Telecom
Three Months Ended or as of June 30, 2016			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	774	$	175	$	45	$	33	$	(1)	$	252	$	(7)	$	1,019
	Equipment and product sales			218		–		–		47		–		48		10		276
		Total operating revenues1		992		175		45		80		(1)		300		3		1,295
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			193		64		24		19		(1)		105		(1)		297
Cost of equipment and products				262		–		–		39		–		39		8		309
Selling, general and administrative				357		49		12		15		–		76		(4)		429
Depreciation, amortization and accretion4				154		37		9		7		–		54		2		210
(Gain) loss on asset disposals, net				5		1		–		–		–		1		–		6
(Gain) loss on license sales and exchanges, net				(9)		–		–		–		–		–		–		(9)
Operating income (loss)1				30		25		–		–		–		24		(1)		53
Equity in earnings of unconsolidated entities				37		–		–		–		–		–		(1)		36
Interest and dividend income1				2		1		–		–		–		1		–		3
Interest expense				(28)		–		–		(1)		–		(1)		(14)		(43)
Other, net				(1)		–		–		–		–		–		2		1
Income (loss) before income taxes				40		25		–		(1)		–		24		(14)		50
Income tax expense (benefit)2				13										10		(5)		18
Net income (loss)				27										15		(10)		32
Add back:
Depreciation, amortization and accretion4				154		37		9		7		–		54		2		210
(Gain) loss on asset disposals, net				5		1		–		–		–		1		–		6
(Gain) loss on license sales and exchanges, net				(9)		–		–		–		–		–		–		(9)
Interest expense				28		–		–		1		–		1		14		43
Income tax expense (benefit)2				13		–		–		–		–		10		(5)		18
Adjusted EBITDA3			$	218	$	63	$	10	$	7	$	–	$	80	$	2	$	300

Investments in unconsolidated entities			$	407	$	4	$	–	$	–	$	–	$	4	$	35	$	446
Total assets			$	7,091	$	1,268	$	589	$	285	$	–	$	2,142	$	193	$	9,426
Capital expenditures			$	93	$	27	$	17	$	2	$	–	$	46	$	3	$	142

Numbers may not foot due to rounding.

					TDS Telecom
Six Months Ended or as of June 30, 2017			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	1,486	$	359	$	100	$	56	$	(2)	$	513	$	(10)	$	1,989
	Equipment and product sales			413		1		–		66		–		67		16		496
		Total operating revenues1		1,899		360		100		122		(2)		580		6		2,485
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			364		129		48		42		(2)		216		–		580
Cost of equipment and products				488		1		–		55		–		56		13		557
Selling, general and administrative				691		96		25		21		–		142		(8)		825
Depreciation, amortization and accretion				307		76		21		14		–		111		4		422
(Gain) loss on asset disposals, net				9		1		1		–		–		1		–		10
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		–		–		(19)
Operating income (loss)1				59		57		5		(9)		–		53		(2)		110
Equity in earnings of unconsolidated entities				66		–		–		–		–		–		(1)		65
Interest and dividend income1				5		2		–		–		–		2		1		8
Interest expense				(56)		–		–		(2)		–		(2)		(27)		(85)
Other, net				(1)		–		–		–		–		–		2		1
Income (loss) before income taxes				73		60		5		(11)		–		54		(28)		99
Income tax expense (benefit)2				33										21		(10)		44
Net income (loss)				40										33		(18)		55
Add back:
Depreciation, amortization and accretion				307		76		21		14		–		111		4		422
(Gain) loss on asset disposals, net				9		1		1		–		–		1		–		10
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		–		–		(19)
Interest expense				56		–		–		2		–		2		27		85
Income tax expense (benefit)2				33										21		(10)		44
Adjusted EBITDA3			$	426	$	137	$	27	$	4	$	–	$	168	$	3	$	597

Investments in unconsolidated entities			$	414	$	4	$	–	$	–	$	–	$	4	$	34	$	452
Total assets			$	7,077	$	1,200	$	611	$	247	$	–	$	2,059	$	242	$	9,378
Capital expenditures			$	145	$	50	$	21	$	10	$	–	$	81	$	4	$	230

Numbers may not foot due to rounding.

					TDS Telecom
Six Months Ended or as of June 30, 2016			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	1,545	$	347	$	90	$	62	$	(2)	$	497	$	(10)	$	2,032
	Equipment and product sales			417		1		–		82		–		84		17		518
		Total operating revenues1		1,962		348		90		144		(2)		581		7		2,550
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			376		126		46		40		(2)		210		(1)		585
Cost of equipment and products				518		1		–		68		–		69		13		600
Selling, general and administrative				719		98		24		25		–		147		(7)		859
Depreciation, amortization and accretion4				307		78		18		15		–		112		3		422
(Gain) loss on asset disposals, net				10		1		1		–		–		2		–		12
(Gain) loss on license sales and exchanges, net				(9)		–		–		–		–		–		–		(9)
Operating income (loss)1				41		45		1		(4)		–		41		(1)		81
Equity in earnings of unconsolidated entities				72		–		–		–		–		–		–		72
Interest and dividend income1				3		1		–		–		–		2		–		5
Interest expense				(56)		1		–		(2)		–		(1)		(28)		(85)
Other, net				–		–		–		–		–		–		–		–
Income (loss) before income taxes				60		46		1		(6)		–		41		(28)		73
Income tax expense (benefit)2				23										16		(8)		31
Net income (loss)				37										25		(20)		42
Add back:
Depreciation, amortization and accretion4				307		78		18		15		–		112		3		422
(Gain) loss on asset disposals, net				10		1		1		–		–		2		–		12
(Gain) loss on license sales and exchanges, net				(9)		–		–		–		–		–		–		(9)
Interest expense				56		(1)		–		2		–		1		28		85
Income tax expense (benefit)2				23										16		(8)		31
Adjusted EBITDA3			$	424	$	125	$	20	$	11	$	–	$	156	$	3	$	583

Investments in unconsolidated entities			$	407	$	4	$	–	$	–	$	–	$	4	$	35	$	446
Total assets			$	7,091	$	1,268	$	589	$	285	$	–	$	2,142	$	193	$	9,426
Capital expenditures			$	172	$	55	$	30	$	3	$	–	$	88	$	7	$	267

Numbers may not foot due to rounding.

1		Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017. All prior period numbers have been recast to conform to this accounting change. See Note 1 — Basis of Presentation for additional details.

2		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”.

3		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. TDS believes Adjusted EBITDA is a useful measure of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.

4		During the three and six months ended June 30, 2016, TDS recorded an out-of-period adjustment attributable to the third quarter of 2014 through the first quarter of 2016 related to the over-depreciation of certain assets in the Wireline segment. TDS determined that this adjustment was not material to the quarterly periods or the annual results for 2016. As a result of this out-of-period adjustment, Depreciation, amortization and accretion expense decreased by $4 million for the three and six months ended June 30, 2016.