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Revenue Recognition | 9 Months Ended
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Sep. 30, 2018
Revenue from Contract with Customer [Abstract] |
Revenue Recognition | Revenue Recognition Change in Accounting Policy In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers and has since amended the standard with Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, collectively referred to hereinafter as ASU 2014-09. These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets. TDS adopted the provisions of ASU 2014-09 and ASU 2017-05 and applied them to all contracts as of January 1, 2018, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard. The cumulative effect of applying the provisions of ASU 2014-09 resulted in an increase of $163 million in retained earnings as of January 1, 2018. ASU 2017-05 had no impact to retained earnings as of January 1, 2018. As a practical expedient, TDS groups similar contracts or similar performance obligations together into portfolios of contracts or performance obligations if doing so does not result in a significant difference from applying the new accounting standard to the individual contracts. TDS applies this grouping method for the following types of transactions: device activation fees, contract acquisition costs, contract fulfillment costs, and certain customer promotions. Contract portfolios will be recognized over the respective expected customer lives or terms of the contracts. The line items impacted by the adoption of ASU 2014-09 and ASU 2017-05 in the Consolidated Statement of Operations and the Consolidated Balance Sheet are presented below. Consolidated Statement of Operations
Three Months Ended September 30, 2018 | Results under prior accounting standards |  | Adjustment |  | As reported
(Dollars and shares in millions, except per share amounts) |  |  |  |  |
Operating revenues |  |  |  |  |
Service | $ | 1,045 |  |  | $ | (28 | ) |  | $ | 1,017 |
Equipment and product sales | 261 |  |  | 19 |  |  | 280 |
Total operating revenues | 1,306 |  |  | (9 | ) |  | 1,297 |
Cost of equipment and products | 294 |  |  | (3 | ) |  | 291 |
Selling, general, and administrative | 422 |  |  | (1 | ) |  | 421 |
Total operating expenses | 1,250 |  |  | (4 | ) |  | 1,246 |
Operating income (loss) | 56 |  |  | (5 | ) |  | 51 |
Income (loss) before income taxes | 63 |  |  | (5 | ) |  | 58 |
Income tax expense (benefit) | 6 |  |  | (1 | ) |  | 5 |
Net income (loss) | 56 |  |  | (3 | ) |  | 53 |
Less: Net income (loss) attributable to noncontrolling interests, net of tax | 8 |  |  | (1 | ) |  | 7 |
Net income (loss) attributable to TDS shareholders | 49 |  |  | (3 | ) |  | 46 |
Net income (loss) available to TDS common shareholders | 49 |  |  | (3 | ) |  | 46 |
Basic earnings (loss) per share available to TDS common shareholders | $ | 0.44 |  |  | $ | (0.03 | ) |  | $ | 0.41 |
Diluted earnings (loss) per share available to TDS common shareholders | $ | 0.43 |  |  | $ | (0.02 | ) |  | $ | 0.41 |
Numbers may not foot due to rounding
Nine Months Ended September 30, 2018 | Results under prior accounting standards |  | Adjustment |  | As reported
(Dollars and shares in millions, except per share amounts) |  |  |  |  |
Operating revenues |  |  |  |  |
Service | $ | 3,075 |  |  | $ | (87 | ) |  | $ | 2,988 |
Equipment and product sales | 728 |  |  | 61 |  |  | 789 |
Total operating revenues | 3,803 |  |  | (26 | ) |  | 3,777 |
Cost of equipment and products | 812 |  |  | (8 | ) |  | 804 |
Selling, general and administrative | 1,229 |  |  | 3 |  |  | 1,232 |
(Gain) loss on license sales and exchanges, net | (17 | ) |  | (1 | ) |  | (18 | )
Total operating expenses | 3,591 |  |  | (6 | ) |  | 3,585 |
Operating income (loss) | 212 |  |  | (20 | ) |  | 192 |
Income (loss) before income taxes | 223 |  |  | (20 | ) |  | 203 |
Income tax expense (benefit) | 53 |  |  | (5 | ) |  | 48 |
Net income (loss) | 170 |  |  | (15 | ) |  | 155 |
Less: Net income (loss) attributable to noncontrolling interests, net of tax | 38 |  |  | (2 | ) |  | 36 |
Net income (loss) attributable to TDS shareholders | 131 |  |  | (12 | ) |  | 119 |
Net income (loss) available to TDS common shareholders | 131 |  |  | (12 | ) |  | 119 |
Basic earnings (loss) per share available to TDS common shareholders | $ | 1.17 |  |  | $ | (0.11 | ) |  | $ | 1.06 |
Diluted earnings (loss) per share available to TDS common shareholders | $ | 1.15 |  |  | $ | (0.11 | ) |  | $ | 1.04 |
Numbers may not foot due to rounding The decrease in Service revenues and the increase in Equipment and product sales revenues are driven primarily by differences in the timing and classification of revenue recognized for certain arrangements with multiple performance obligations and ceasing to record deferred imputed interest and the resulting interest income on equipment installment contracts. Under prior accounting standards, revenues were allocated to deliverables using the relative selling price method, where consideration was allocated to each element on the basis of its relative selling price. Revenue recognized for the delivered items was limited to the amount due from the customer that was not contingent upon the delivery of additional products or services. Under ASU 2014-09, the revenue allocation of the transaction price is based on the relative standalone selling prices of the individual performance obligations in the customer’s contract, and the resulting revenue attributable to each is recognized as control over the performance obligation is transferred to the customer. This has resulted in increased Equipment and product sales revenues as more revenue is allocated to discounted equipment than under prior accounting standards. Under prior accounting standards, TDS deferred imputed interest related to equipment installment plan receivable contracts that exceeded twelve months, and recognized the corresponding interest income over the contract period in Service revenues. Under the provisions of ASU 2014-09, TDS has determined that equipment installment plan contracts do not contain a significant financing component, and accordingly, TDS ceased recording deferred imputed interest and the resulting interest income on equipment installment contracts upon the adoption of ASU 2014-09. Cost of equipment and products decreased due to a change in timing of recognition of cost of goods sold in the agent channel. Under prior accounting standards, Equipment and product sales to agents and the related Cost of equipment and products was recognized when equipment was sold through from the agent to end user customers. In accordance with the provisions of ASU 2014-09, such amounts are recognized when TDS delivers the equipment to the agent. Selling, general and administrative expenses include the amortization of contract acquisition and contract fulfillment costs that are capitalized under ASU 2014-09. Under ASU 2017-05, (Gain) loss on license sales and exchanges, net is calculated by subtracting the carrying amount of the distinct asset being disposed from the consideration measured and allocated to that distinct asset. With respect to license exchange transactions, the consideration, or transaction price, is the fair value of the licenses received. Under prior accounting standards, the transaction price was typically the fair value of the licenses surrendered. Consolidated Balance Sheet
As of September 30, 2018 | Results under prior accounting standards |  | Adjustment |  | As reported
(Dollars in millions) |  |  |  |  |  |
Accounts receivable |  |  |  |  |  |  |  |
Customers and agents, less allowances | $ | 871 |  |  | $ | 59 |  |  | $ | 930 |
Prepaid expenses | 118 |  |  | (16 | ) |  | 102 |
Other current assets | 26 |  |  | 4 |  |  | 30 |
Total current assets | 2,340 |  |  | 47 |  |  | 2,387 |
Licenses | 2,197 |  |  | 1 |  |  | 2,198 |
Investments in unconsolidated entities | 485 |  |  | 15 |  |  | 500 |
Other assets and deferred charges | 421 |  |  | 173 |  |  | 594 |
Total assets | 9,483 |  |  | 236 |  |  | 9,719 |
Customer deposits and deferred revenues | 194 |  |  | (12 | ) |  | 182 |
Accrued taxes | 58 |  |  | (3 | ) |  | 55 |
Other current liabilities | 90 |  |  | 3 |  |  | 93 |
Total current liabilities | 863 |  |  | (11 | ) |  | 852 |
Deferred income tax liability, net | 586 |  |  | 56 |  |  | 642 |
Other deferred liabilities and credits | 530 |  |  | 12 |  |  | 542 |
Retained earnings | 2,533 |  |  | 150 |  |  | 2,683 |
Total TDS shareholders' equity | 4,392 |  |  | 150 |  |  | 4,542 |
Noncontrolling interests | 680 |  |  | 28 |  |  | 708 |
Total equity | 5,072 |  |  | 178 |  |  | 5,250 |
Total liabilities and equity | $ | 9,483 |  |  | $ | 236 |  |  | $ | 9,719 |
Numbers may not foot due to rounding As a result of adoption of ASU 2014-09, TDS recorded short-term and long-term contract assets and contract liabilities in its Consolidated Balance Sheet as of September 30, 2018. Under ASU 2014-09, the timing of recognition of revenue for each performance obligation may differ from the timing of the customer billing, creating a contract asset or contract liability. See Contract Balances below for additional information. Contract assets are included in Other current assets if short-term in nature or Other assets and deferred charges if long-term in nature. Short-term contract liabilities are classified as Customer deposits and deferred revenues and long-term contract liabilities are included in Other deferred liabilities and credits. Accounts receivable increased as a result of TDS ceasing to record deferred imputed interest. Certain prepaid expenses decreased due to a change in timing of recognition of sales of equipment to agents. Investments in unconsolidated entities increased due to the cumulative effect of applying the provisions of ASU 2014-09 to certain of TDS’ equity method investments as of January 1, 2018. Deferred income tax liabilities, net, increased due to the provisions of ASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis, without a corresponding increase in tax basis. Contract cost assets have also been created as a result of ASU 2014-09 due to capitalization of fulfillment costs and costs to obtain a new contract. See Contract Cost Assets below for additional information. Nature of goods and services The following is a description of principal activities from which TDS generates its revenues.
Services and products | Nature, timing of satisfaction of performance obligations, and significant payment terms
Wireless services | Wireless service includes voice, messaging and data services. Revenue is recognized in Service revenues as wireless service is provided to the customer. Wireless services generally are billed and paid in advance on a monthly basis.
Wireless devices and accessories | U.S. Cellular offers a comprehensive range of wireless devices such as handsets, modems, mobile hotspots, home phones and tablets for use by its customers, as well as accessories. U.S. Cellular also sells wireless devices to agents and other third-party distributors for resale. U.S. Cellular frequently discounts wireless devices sold to new and current customers. U.S. Cellular also offers customers the option to purchase certain devices under installment contracts over a specified time period. For certain equipment installment plans, after a specified period of time, the customer may have the right to upgrade to a new device. Such upgrades require the customer to enter into an equipment installment contract for the new device, and transfer the existing device to U.S. Cellular. U.S. Cellular recognizes revenue in Equipment and product sales revenues when control of the device or accessory is transferred to the customer, which is generally upon delivery.
Wireless roaming | U.S. Cellular receives roaming revenues when other wireless carriers’ customers use U.S. Cellular’s wireless systems. U.S. Cellular recognizes revenue in Service revenues when the roaming service is provided to the other carrier’s customer.
Wireless Eligible Telecommunications Carrier (ETC) Revenues | Telecommunications companies may be designated by states, or in some cases by the FCC, as an ETC to receive support payments from the Universal Service Fund if they provide specified services in “high cost” areas. ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an ETC in various states.
Wireless tower rents | U.S. Cellular receives tower rental revenues when another carrier leases tower space on a U.S. Cellular owned tower. U.S. Cellular recognizes revenue in Service revenues in the period during which the services are provided.
Activation fees | TDS charges its end customers activation fees in connection with the sale of certain services and equipment. Activation fees charged by TDS Telecom in conjunction with a service offering are deferred and recognized over the average customer’s service period. These fees charged at U.S. Cellular are deferred and recognized over the period benefitted.
Wireline services | Wireline services include broadband, video and voice services. Revenue is recognized in Service revenues as service is provided to the customer. Wireline services are generally billed and paid in advance on a monthly basis.
Wireline wholesale revenues | Wholesale revenues include network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s network, special access services and state and federal support payments, including A-CAM. Wholesale revenues are recorded as the related service is provided.
Cable services | Cable services include broadband, video and voice services. Revenue is recognized in Service revenues as service is provided to the customer. Cable services are generally billed and paid in advance on a monthly basis.
IT hardware sales | TDS recognizes equipment revenue when it no longer has any requirements to perform, when title has passed and when the products are accepted by the customer.
Hosted and managed services | HMS Service revenues consist of cloud and hosting solutions, managed services, Enterprise Resource Planning (ERP) application management, colocation services, and IT hardware related maintenance and professional services. Revenues related to these services are recognized as services are provided.
Significant Judgments U.S. Cellular and TDS Telecom sell bundled service and equipment offerings. In these instances, TDS recognizes its revenue based on the relative standalone selling prices for each distinct service or equipment performance obligation, or bundles thereof. TDS estimates the standalone selling price of the device or accessory to be its retail price excluding discounts. TDS estimates the standalone selling price of wireless service to be the price offered to customers on month-to-month contracts. Revenues from sales of equipment and products are recognized when control has transferred to the customer. Service revenues are recognized as the related service is provided. Services are deemed to be highly interrelated when the method and timing of transfer and performance risk are the same. Highly interrelated services that are determined to not be distinct have been grouped into a single performance obligation. Each month of services promised is a performance obligation. The series of monthly service performance obligations promised over the course of the contract are combined into a single performance obligation for purposes of the allocation. TDS has made judgments regarding transaction price, including but not limited to issues relating to variable consideration, time value of money and returns. When determined to be significant in the context of the contract, these items are considered in the valuation of transaction price at contract inception or modification, as appropriate. Disaggregation of Revenue In the following table, revenue is disaggregated by type of service and timing of revenue recognition. Service revenues are recognized over time and Equipment sales are point in time.
|  |  | TDS Telecom |  |  |  |
Three Months Ended September 30, 2018 | U.S. Cellular |  | Wireline |  | Cable |  | TDS Telecom Total |  | Corporate, Eliminations and Other |  | Total
(Dollars in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from contracts with customers: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Type of service: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail service | $ | 659 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 659 |
Inbound roaming | 50 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 50 |
Residential | — |  |  | 81 |  |  | 47 |  |  | 128 |  |  | — |  |  | 128 |
Commercial | — |  |  | 46 |  |  | 10 |  |  | 56 |  |  | — |  |  | 56 |
Wholesale | — |  |  | 50 |  |  | — |  |  | 50 |  |  | — |  |  | 50 |
Other service | 34 |  |  | — |  |  | — |  |  | — |  |  | 18 |  |  | 52 |
Service revenues from contracts with customers | 743 |  |  | 176 |  |  | 58 |  |  | 233 |  |  | 18 |  |  | 995 |
Equipment and product sales | 242 |  |  | — |  |  | — |  |  | — |  |  | 38 |  |  | 280 |
Total revenues from contracts with customers 1 | $ | 985 |  |  | $ | 176 |  |  | $ | 58 |  |  | $ | 234 |  |  | $ | 56 |  |  | $ | 1,275 |
Numbers may not foot due to rounding.
1 | These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations.
|  |  | TDS Telecom |  |  |  |
Nine Months Ended September 30, 2018 | U.S. Cellular |  | Wireline |  | Cable |  | TDS Telecom Total |  | Corporate, Eliminations and Other |  | Total
(Dollars in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from contracts with customers: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Type of service: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail service | $ | 1,960 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,960 |
Inbound roaming | 116 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 116 |
Residential | — |  |  | 241 |  |  | 140 |  |  | 381 |  |  | — |  |  | 381 |
Commercial | — |  |  | 140 |  |  | 30 |  |  | 170 |  |  | — |  |  | 170 |
Wholesale | — |  |  | 143 |  |  | — |  |  | 143 |  |  | — |  |  | 143 |
Other service | 99 |  |  | — |  |  | — |  |  | (1 | ) |  | 52 |  |  | 150 |
Service revenues from contracts with customers | 2,175 |  |  | 524 |  |  | 170 |  |  | 693 |  |  | 52 |  |  | 2,920 |
Equipment and product sales | 692 |  |  | 1 |  |  | — |  |  | 1 |  |  | 96 |  |  | 789 |
Total revenues from contracts with customers 1 | $ | 2,867 |  |  | $ | 525 |  |  | $ | 170 |  |  | $ | 694 |  |  | $ | 148 |  |  | $ | 3,709 |
Numbers may not foot due to rounding.
1 | These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations.
Contract Balances For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price. When payment is collected in advance of delivery of goods or services, a contract liability is recorded. A contract asset is recorded when revenue is recognized in advance of TDS’ right to receive consideration. Once there is an unconditional right to receive the consideration, TDS bills the customer under the terms of the respective contract and the amounts are recorded as receivables. TDS recognizes Equipment and product sales revenue when the equipment is delivered to the customer and a corresponding contract asset or liability is recorded for the difference between the amount of revenue recognized and the amount billed to the customer in cases where discounts are offered. The contract asset or liability is reduced over the contract term as service is provided and billed to the customer. The accounts receivable balance related to amounts billed and not paid on contracts with customers, net of allowances, is shown in the table below. Bad debts expense recognized for the three and nine months ended September 30, 2018, related to receivables was $27 million and $70 million, respectively.
| September 30, 2018
(Dollars in millions) |
Accounts receivable |
Customer and agents | $ | 926 |
Other | 98 |
Total 1 | $ | 1,024 |
1 | These amounts do not include accounts receivable related to revenues outside the scope of ASU 2014-09; therefore, accounts receivable line items presented in this table will not agree to amounts presented in the Consolidated Balance Sheet.
The following table provides a rollforward of contract assets from contracts with customers, which are recorded in Other current assets and Other assets and deferred charges in the Consolidated Balance Sheet.
| Contract Assets
(Dollars in millions) |
Balance at December 31, 2017 | $ | — |
Change in accounting policy | 28 |
Contract additions | 20 |
Terminated contracts | (1 | )
Reclassified to receivables | (35 | )
Balance at September 30, 2018 | $ | 12 |
The following table provides a rollforward of contract liabilities from contracts with customers, which are recorded in Customer deposits and deferred revenues and Other deferred liabilities and credits in the Consolidated Balance Sheet.
| Contract Liabilities
(Dollars in millions) |
Balance at December 31, 2017 | $ | — |
Change in accounting policy - Deferred revenues reclassification 1 | 209 |
Change in accounting policy - Retained earnings impact | (22 | )
Contract additions | 137 |
Revenue recognized | (137 | )
Balance at September 30, 2018 | $ | 187 |
1 | This amount represents TDS' obligation to transfer goods or services to customers for which it had received payment and classified as deferred revenue at December 31, 2017.
Transaction price allocated to the remaining performance obligations The following table includes estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The estimates represent service revenue to be recognized when services are delivered to customers pursuant to service plan contracts. These estimates are based on contracts in place as of September 30, 2018, and may vary from actual results due to future contract modifications. As a practical expedient, revenue related to contracts of less than one year, generally contracts with month-to-month customers, are excluded from these estimates.
| Service Revenue
(Dollars in millions) |
Remainder of 2018 | $ | 211 |
2019 | 220 |
Thereafter | 116 |
Total | $ | 547 |
TDS has certain contracts at U.S. Cellular and TDS Telecom in which it bills an amount equal to a fixed per-unit price multiplied by a variable quantity (e.g., roaming agreements with other carriers). Because TDS invoices for such items in an amount that corresponds directly with the value of the performance completed to date, TDS may recognize revenue in that amount. As a practical expedient, these contracts are excluded from the estimate of future revenues expected to be recognized related to performance obligations that are unsatisfied as of the end of a reporting period. Contract Cost Assets TDS expects that incremental commission fees paid as a result of obtaining contracts are recoverable and therefore TDS capitalizes these costs. As a practical expedient, costs with an amortization period of one year or less are not capitalized. TDS also incurs fulfillment costs, such as installation costs, where there is an expectation that a future benefit will be realized. Capitalized commission fees and fulfillment costs are amortized based on the transfer of the goods or services to which the assets relate, typically the contract term which ranges from thirteen months to five years. Contract cost asset balances, which are recorded in Other assets and deferred charges in the Consolidated Balance Sheet, were as follows:
| September 30, 2018
(Dollars in millions) |
Costs to obtain contracts |  |
Sales commissions | $ | 149 |
Fulfillment costs |
Installation costs | 10 |
Total contract cost assets | $ | 159 |
Amortization of contract cost assets was $31 million and $93 million for the three and nine months ended September 30, 2018, respectively, and was included in Selling, general and administrative expense. There was no impairment loss recognized for the three and nine months ended September 30, 2018, related to contract cost assets.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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