Note 18 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 2016, 2015 and 2014, is as follows. See Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements for additional information.

					TDS Telecom
Year Ended or as of December 31, 2016			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	3,081	$	696	$	185	$	119	$	(5)	$	995	$	(26)	$	4,050
	Equipment and product sales			909		2		–		155		–		157		39		1,105
		Total operating revenues1		3,990		698		185		273		(5)		1,151		14		5,155
Cost of services (excluding Depreciation, amortization
and accretion expense reported below)				760		258		94		82		(4)		430		(1)		1,189
Cost of equipment and products				1,081		2		–		128		–		131		28		1,240
Selling, general and administrative				1,480		197		51		48		–		295		(16)		1,759
Depreciation, amortization and accretion				618		159		37		29		–		224		8		850
(Gain) loss on asset disposals, net				22		2		2		–		–		4		1		27
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		(1)		(1)
(Gain) loss on license sales and exchanges, net				(19)		(1)		–		–		–		(1)		–		(20)
Operating income (loss)¹				48		80		2		(14)		–		67		(4)		111
Equity in earnings of unconsolidated entities				140		–		–		–		–		–		–		140
Interest and dividend income1				6		3		–		–		–		3		2		11
Interest expense				(113)		1		–		(4)		–		(3)		(54)		(170)
Other, net				1		–		–		–		–		–		(1)		–
Income (loss) before income taxes				82		83		2		(18)		–		67		(57)		92
Income tax expense (benefit)2				33										25		(18)		40
Net income (loss)				49										42		(39)		52
Add back:
Depreciation, amortization and accretion				618		159		37		29		–		224		8		850
(Gain) loss on asset disposals, net				22		2		2		–		–		4		1		27
(Gain) loss on sale of business and other exit costs, net				–		–		–		–		–		–		(1)		(1)
(Gain) loss on license sales and exchanges, net				(19)		(1)		–		–		–		(1)		–		(20)
Interest expense				113		(1)		–		4		–		3		54		170
Income tax expense (benefit)2				33										25		(18)		40
Adjusted EBITDA3			$	816	$	242	$	41	$	15	$	–	$	298	$	4	$	1,118

Investments in unconsolidated entities			$	413	$	4	$	–	$	–	$	–	$	4	$	34	$	451
Total assets			$	7,110	$	1,231	$	599	$	264	$	–	$	2,094	$	242	$	9,446
Capital expenditures			$	446	$	108	$	54	$	11	$	–	$	173	$	11	$	630

					TDS Telecom
Year Ended or as of December 31, 2015			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	3,384	$	699	$	175	$	117	$	(5)	$	986	$	(14)	$	4,356
	Equipment and product sales			647		2		–		170		–		172		35		854
		Total operating revenues1		4,031		701		175		287		(5)		1,158		21		5,210
Cost of services (excluding Depreciation, amortization
and accretion expense reported below)				775		255		79		85		(4)		414		2		1,191
Cost of equipment and products				1,053		2		–		143		–		145		26		1,224
Selling, general and administrative				1,494		194		54		47		–		294		(7)		1,781
Depreciation, amortization and accretion				607		166		35		27		–		228		9		844
(Gain) loss on asset disposals, net				16		5		1		–		–		6		–		22
(Gain) loss on sale of business and other exit costs, net				(114)		(10)		–		–		–		(10)		(12)		(136)
(Gain) loss on license sales and exchanges, net				(147)		–		–		–		–		–		–		(147)
Operating income (loss)¹				347		89		6		(15)		–		79		5		431
Equity in earnings of unconsolidated entities				140		–		–		–		–		–		–		140
Interest and dividend income1				2		2		–		–		–		2		1		5
Interest expense				(86)		1		–		(2)		–		(1)		(55)		(142)
Other, net				1		–		–		–		–		–		–		1
Income (loss) before income taxes				404		92		7		(18)		–		81		(50)		435
Income tax expense (benefit)2				157										35		(20)		172
Net income (loss)				247										46		(30)		263
Add back:
Depreciation, amortization and accretion				607		166		35		27		–		228		9		844
(Gain) loss on asset disposals, net				16		5		1		–		–		6		–		22
(Gain) loss on sale of business and other exit costs, net				(114)		(10)		–		–		–		(10)		(12)		(136)
(Gain) loss on license sales and exchanges, net				(147)		–		–		–		–		–		–		(147)
Interest expense				86		(1)		–		2		–		1		55		142
Income tax expense (benefit)2				157										35		(20)		172
Adjusted EBITDA3			$	852	$	252	$	42	$	12	$	–	$	306	$	2	$	1,160

Investments in unconsolidated entities			$	363	$	4	$	–	$	–	$	–	$	4	$	35	$	402
Total assets			$	7,060	$	1,312	$	578	$	286	$	–	$	2,176	$	186	$	9,422
Capital expenditures			$	533	$	140	$	52	$	27	$	–	$	219	$	7	$	759

					TDS Telecom
Year Ended or as of December 31, 2014			U.S. Cellular		Wireline		Cable		HMS		TDS Telecom Eliminations		TDS Telecom Total		Corporate, Eliminations and Other		Total
(Dollars in millions)
Operating revenues
	Service1		$	3,407	$	715	$	117	$	110	$	(4)	$	938	$	(7)	$	4,338
	Equipment and product sales			495		2		–		149		–		151		34		680
		Total operating revenues1		3,902		716		117		259		(4)		1,088		28		5,018
Cost of services (excluding Depreciation, amortization
and accretion reported below)				770		257		54		77		(4)		385		9		1,164
Cost of equipment and products				1,193		2		–		126		–		129		25		1,347
Selling, general and administrative				1,592		190		36		53		–		279		(6)		1,865
Depreciation, amortization and accretion				606		169		24		27		–		220		11		837
Loss on impairment of assets				–		–		–		84		–		84		4		88
(Gain) loss on asset disposals, net				21		2		2		–		–		5		1		27
(Gain) loss on sale of business and other exit costs, net				(33)		(2)		–		–		–		(2)		19		(16)
(Gain) loss on license sales and exchanges, net				(113)		–		–		–		–		–		–		(113)
Operating income (loss)¹				(134)		98		–		(109)		–		(10)		(37)		(181)
Equity in earnings of unconsolidated entities				130		–		–		–		–		–		2		132
Interest and dividend income1				3		2		–		–		–		2		3		8
Interest expense				(57)		3		–		(2)		–		1		(55)		(111)
Other, net				(1)		–		–		–		–		–		1		–
Income (loss) before income taxes				(59)		104		–		(111)		–		(7)		(86)		(152)
Income tax expense (benefit)2				(12)										18		(11)		(5)
Net income (loss)				(47)										(24)		(76)		(147)
Add back:
Depreciation, amortization and accretion				606		169		24		27		–		220		11		837
Loss on impairment of assets				–		–		–		84		–		84		4		88
(Gain) loss on asset disposals, net				21		2		2		–		–		5		1		27
(Gain) loss on sale of business and other exit costs, net				(33)		(2)		–		–		–		(2)		19		(16)
(Gain) loss on license sales and exchanges, net				(113)		–		–		–		–		–		–		(113)
Interest expense				57		(3)		–		2		–		(1)		55		111
Income tax expense (benefit)2				(12)										18		(11)		(5)
Adjusted EBITDA3			$	479	$	270	$	26	$	2	$	–	$	298	$	5	$	782

Investments in unconsolidated entities			$	283	$	4	$	–	$	–	$	–	$	4	$	35	$	322
Total assets			$	6,462	$	1,419	$	564	$	269	$	–	$	2,252	$	140	$	8,854
Capital expenditures			$	558	$	136	$	36	$	37	$	–	$	208	$	5	$	771

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 numbers have been recast to conform to this accounting change. See Note 21 — Retrospective Application of Change in Accounting Policy 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.