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

					TDS Telecom
Three Months Ended or as of September 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		$	737	$	178	$	52	$	28	$	(1)	$	257	$	(6)	$	988
	Equipment and product sales			226		–		–		27		–		28		9		263
		Total operating revenues1		963		179		52		56		(1)		285		3		1,251
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			185		66		25		21		(1)		110		(1)		294
Cost of equipment and products				261		–		–		22		–		23		7		291
Selling, general and administrative				350		49		13		11		–		73		(1)		422
Depreciation, amortization and accretion				153		38		11		7		–		56		–		209
Loss on impairment of goodwill2				370		–		–		35		–		35		(143)		262
(Gain) loss on asset disposals, net				5		–		1		–		–		1		–		6
(Gain) loss on sale of business and other exit costs, net				(1)		–		–		–		–		–		–		(1)
Operating income (loss)1				(360)		26		2		(41)		–		(13)		141		(232)
Equity in earnings of unconsolidated entities				35		–		–		–		–		–		–		35
Interest and dividend income1				2		2		–		–		–		2		–		4
Interest expense				(28)		–		–		(1)		–		(1)		(14)		(43)
Other, net				–		–		–		–		–		–		–		–
Income (loss) before income taxes				(351)		28		2		(42)		–		(12)		127		(236)
Income tax expense (benefit)3				(53)										3		45		(5)
Net income (loss)				(298)										(15)		82		(231)
Add back:
Depreciation, amortization and accretion				153		38		11		7		–		56		–		209
Loss on impairment of goodwill2				370		–		–		35		–		35		(143)		262
(Gain) loss on asset disposals, net				5		–		1		–		–		1		–		6
(Gain) loss on sale of business and other exit costs, net				(1)		–		–		–		–		–		–		(1)
Interest expense				28		–		–		1		–		1		14		43
Income tax expense (benefit)3				(53)										3		45		(5)
Adjusted EBITDA4			$	204	$	66	$	14	$	1	$	–	$	80	$	(1)	$	283

Investments in unconsolidated entities			$	429	$	4	$	–	$	–	$	–	$	4	$	34	$	467
Total assets			$	6,780	$	1,201	$	619	$	208	$	–	$	2,028	$	402	$	9,210
Capital expenditures			$	112	$	41	$	14	$	2	$	–	$	58	$	2	$	172

Numbers may not foot due to rounding.

					TDS Telecom
Three Months Ended or as of September 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		$	784	$	174	$	46	$	29	$	(1)	$	248	$	(6)	$	1,026
	Equipment and product sales			239		–		–		39		–		39		10		288
		Total operating revenues1		1,023		175		46		68		(1)		287		4		1,314
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			196		67		23		21		(1)		110		(1)		305
Cost of equipment and products				280		1		–		33		–		33		8		321
Selling, general and administrative				370		50		13		12		–		75		(5)		440
Depreciation, amortization and accretion5				155		41		9		7		–		57		2		214
(Gain) loss on asset disposals, net				7		1		1		–		–		2		(1)		8
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		–		–
(Gain) loss on license sales and exchanges, net				(7)		–		–		–		–		–		–		(7)
Operating income (loss)1				22		16		–		(5)		–		12		(1)		33
Equity in earnings of unconsolidated entities				38		–		–		–		–		–		–		38
Interest and dividend income1				1		1		–		–		–		1		–		2
Interest expense				(28)		–		–		(1)		–		(1)		(13)		(42)
Other, net				–		–		–		–		–		–		(1)		(1)
Income (loss) before income taxes				33		17		–		(6)		–		11		(14)		30
Income tax expense (benefit)3				15										4		(5)		14
Net income (loss)				18										7		(9)		16
Add back:
Depreciation, amortization and accretion5				155		41		9		7		–		57		2		214
(Gain) loss on asset disposals, net				7		1		1		–		–		2		(1)		8
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		–		–
(Gain) loss on license sales and exchanges, net				(7)		–		–		–		–		–		–		(7)
Interest expense				28		–		–		1		–		1		13		42
Income tax expense (benefit)3				15		–		–		–		–		4		(5)		14
Adjusted EBITDA4			$	216	$	58	$	10	$	3	$	–	$	71	$	–	$	287

Investments in unconsolidated entities			$	420	$	4	$	–	$	–	$	–	$	4	$	35	$	459
Total assets			$	7,104	$	1,259	$	592	$	273	$	–	$	2,123	$	222	$	9,449
Capital expenditures			$	103	$	27	$	11	$	2	$	–	$	40	$	2	$	145

Numbers may not foot due to rounding.

					TDS Telecom
Nine Months Ended or as of September 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		$	2,223	$	537	$	152	$	84	$	(3)	$	770	$	(17)	$	2,976
	Equipment and product sales			639		1		–		93		–		94		27		760
		Total operating revenues1		2,862		538		152		178		(3)		865		9		3,736
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			549		194		73		63		(3)		327		(2)		874
Cost of equipment and products				749		2		–		77		–		79		20		848
Selling, general and administrative				1,041		145		39		32		–		215		(10)		1,246
Depreciation, amortization and accretion				460		114		32		21		–		166		6		632
Loss on impairment of goodwill2				370		–		–		35		–		35		(143)		262
(Gain) loss on asset disposals, net				14		1		1		–		–		2		–		16
(Gain) loss on sale of business and other exit costs, net				(1)		–		–		–		–		–		–		(1)
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		–		–		(19)
Operating income (loss)1				(301)		84		7		(50)		–		41		138		(122)
Equity in earnings of unconsolidated entities				101		–		–		–		–		–		–		101
Interest and dividend income1				6		4		–		–		–		4		2		12
Interest expense				(85)		–		–		(3)		–		(3)		(40)		(128)
Other, net				1		–		–		–		–		–		(1)		–
Income (loss) before income taxes				(278)		88		7		(53)		–		42		99		(137)
Income tax expense (benefit)3				(19)										24		34		39
Net income (loss)				(259)										18		65		(176)
Add back:
Depreciation, amortization and accretion				460		114		32		21		–		166		6		632
Loss on impairment of goodwill2				370		–		–		35		–		35		(143)		262
(Gain) loss on asset disposals, net				14		1		1		–		–		2		–		16
(Gain) loss on sale of business and other exit costs, net				(1)		–		–		–		–		–		–		(1)
(Gain) loss on license sales and exchanges, net				(19)		–		–		–		–		–		–		(19)
Interest expense				85		–		–		3		–		3		40		128
Income tax expense (benefit)3				(19)										24		34		39
Adjusted EBITDA4			$	631	$	202	$	41	$	6	$	–	$	248	$	2	$	881

Investments in unconsolidated entities			$	429	$	4	$	–	$	–	$	–	$	4	$	34	$	467
Total assets			$	6,780	$	1,201	$	619	$	208	$	–	$	2,028	$	402	$	9,210
Capital expenditures			$	257	$	91	$	35	$	13	$	–	$	139	$	6	$	402

Numbers may not foot due to rounding.

					TDS Telecom
Nine Months Ended or as of September 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		$	2,330	$	522	$	136	$	91	$	(3)	$	746	$	(18)	$	3,058
	Equipment and product sales			655		1		–		121		–		123		27		805
		Total operating revenues1		2,985		523		137		212		(3)		868		10		3,863
Cost of services (excluding Depreciation, amortization
	and accretion reported below)			572		192		69		61		(3)		320		(1)		891
Cost of equipment and products				799		2		–		101		–		103		19		921
Selling, general and administrative				1,089		148		37		37		–		222		(12)		1,299
Depreciation, amortization and accretion5				462		119		27		22		–		168		6		636
(Gain) loss on asset disposals, net				16		2		2		–		–		4		–		20
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		(1)		(1)
(Gain) loss on license sales and exchanges, net				(16)		–		–		–		–		–		–		(16)
Operating income (loss)1				63		61		1		(9)		–		53		(3)		113
Equity in earnings of unconsolidated entities				110		–		–		–		–		–		(1)		109
Interest and dividend income1				4		2		–		–		–		2		1		7
Interest expense				(84)		1		–		(3)		–		(2)		(41)		(127)
Other, net				–		–		–		–		–		–		1		1
Income (loss) before income taxes				93		63		1		(12)		–		53		(43)		103
Income tax expense (benefit)3				39										20		(14)		45
Net income (loss)				54										32		(28)		58
Add back:
Depreciation, amortization and accretion5				462		119		27		22		–		168		6		636
(Gain) loss on asset disposals, net				16		2		2		–		–		4		–		20
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		(1)		(1)
(Gain) loss on license sales and exchanges, net				(16)		–		–		–		–		–		–		(16)
Interest expense				84		(1)		–		3		–		2		41		127
Income tax expense (benefit)3				39										20		(14)		45
Adjusted EBITDA4			$	639	$	183	$	30	$	13	$	–	$	226	$	4	$	869

Investments in unconsolidated entities			$	420	$	4	$	–	$	–	$	–	$	4	$	35	$	459
Total assets			$	7,104	$	1,259	$	592	$	273	$	–	$	2,123	$	222	$	9,449
Capital expenditures			$	275	$	82	$	41	$	6	$	–	$	128	$	9	$	412

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		During the three months ended September 30, 2017, U.S. Cellular recorded a goodwill impairment of $370 million while TDS recorded a goodwill impairment of the U.S. Cellular reporting unit of $227 million. Prior to 2009, TDS accounted for U.S. Cellular's share repurchases as step acquisitions, allocating a portion of the share repurchase value to TDS' Goodwill. Further, goodwill of the U.S. Cellular reporting unit was impaired at the TDS level in 2003 but not at U.S. Cellular. Consequently, U.S. Cellular's goodwill on a stand-alone basis and any resulting impairments of goodwill does not equal the TDS consolidated goodwill related to U.S. Cellular. For further information on the goodwill impairment see Note 6 — Intangible Assets in the Notes to Consolidated Financial Statements.

3		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”.

4		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.

5		During the nine months ended September 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 nine months ended September 30, 2016.