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. TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom, but is reported as a part of Corporate, Eliminations and Other. Prior periods have been recast to conform to the revised presentation.

Financial data for TDS’ reportable segments for the three and nine month periods ended, or as of September 30, 2018 and 2017, is as follows. See Note 1 — Basis of Presentation for additional information.



				TDS Telecom
Three Months Ended or as of September 30, 2018¹	U.S. Cellular			Wireline			Cable		TDS Telecom Total²			Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	759		$	176		$	58	$	234		$	24		$	1,017
Equipment and product sales	242			—			—		—			38			280
Total operating revenues	1,001			177			58		234			62			1,297
Cost of services (excluding Depreciation, amortization and accretion reported below)	200			68			26		94			20			314
Cost of equipment and products	258			—			—		—			33			291
Selling, general and administrative	346			49			14		63			12			421
Depreciation, amortization and accretion	160			35			17		53			7			220
(Gain) loss on asset disposals, net	3			(4		)	1		(3		)	—			—
Operating income (loss)	34			28			—		28			(11		)	51
Equity in earnings of unconsolidated entities	42			—			—		—			—			42
Interest and dividend income	4			2			—		2			—			6
Interest expense	(29		)	1			—		1			(15		)	(43		)
Other, net	—			1			—		1			1			2
Income (loss) before income taxes	51			31			—		31			(24		)	58
Income tax expense (benefit)³	14								(5		)	(4		)	5
Net income (loss)	37								36			(20		)	53
Add back:
Depreciation, amortization and accretion	160			35			17		53			7			220
(Gain) loss on asset disposals, net	3			(4		)	1		(3		)	—			—
Interest expense	29			(1		)	—		(1		)	15			43
Income tax expense (benefit)³	14								(5		)	(4		)	5
Adjusted EBITDA⁴	$	243		$	61		$	18	$	80		$	(2	)	$	321

Investments in unconsolidated entities	$	461		$	4		$	—	$	4		$	35		$	500
Total assets	$	7,228		$	1,302		$	637	$	1,929		$	562		$	9,719
Capital expenditures	$	118		$	41		$	13	$	54		$	5		$	177

Numbers may not foot due to rounding.



				TDS Telecom
Three Months Ended or as of September 30, 2017	U.S. Cellular			Wireline		Cable		TDS Telecom Total²		Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	737		$	178	$	52	$	230	$	21		$	988
Equipment and product sales	226			—		—		—		37			263
Total operating revenues	963			179		52		230		58			1,251
Cost of services (excluding Depreciation, amortization and accretion reported below)	185			66		25		90		19			294
Cost of equipment and products	261			—		—		—		30			291
Selling, general and administrative⁵	350			49		13		63		10			423
Depreciation, amortization and accretion	153			38		11		49		7			209
Loss on impairment of goodwill⁶	370			—		—		—		(108		)	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)⁵	(360		)	25		2		27		100			(233		)
Equity in earnings of unconsolidated entities	35			—		—		—		—			35
Interest and dividend income	2			2		—		2		—			4
Interest expense	(28		)	—		—		—		(15		)	(43		)
Other, net⁵	—			1		—		1		—			1
Income (loss) before income taxes	(351		)	28		2		30		85			(236		)
Income tax expense (benefit)³	(53		)					11		37			(5		)
Net income (loss)	(298		)					18		49			(231		)
Add back:
Depreciation, amortization and accretion	153			38		11		49		7			209
Loss on impairment of goodwill⁶	370			—		—		—		(108		)	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			—		—		—		15			43
Income tax expense (benefit)³	(53		)					11		37			(5		)
Adjusted EBITDA⁴	$	204		$	66	$	14	$	79	$	—		$	283

Investments in unconsolidated entities	$	429		$	4	$	—	$	4	$	34		$	467
Total assets	$	6,780		$	1,201	$	619	$	1,822	$	608		$	9,210
Capital expenditures	$	112		$	41	$	14	$	56	$	4		$	172

Numbers may not foot due to rounding.



				TDS Telecom
Nine Months Ended or as of September 30, 2018¹	U.S. Cellular			Wireline			Cable			TDS Telecom Total²			Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	2,224		$	524		$	170		$	693		$	71		$	2,988
Equipment and product sales	692			1			—			1			96			789
Total operating revenues	2,916			526			170			695			166			3,777
Cost of services (excluding Depreciation, amortization and accretion reported below)	566			200			78			277			59			902
Cost of equipment and products	716			1			—			1			87			804
Selling, general and administrative	1,014			146			42			187			31			1,232
Depreciation, amortization and accretion	478			108			52			160			24			662
(Gain) loss on asset disposals, net	5			(3		)	1			(2		)	—			3
(Gain) loss on license sales and exchanges, net	(18		)	—			—			—			—			(18		)
Operating income (loss)	155			75			(4		)	71			(34		)	192
Equity in earnings of unconsolidated entities	120			—			—			—			1			121
Interest and dividend income	10			5			1			5			3			18
Interest expense	(87		)	1			—			1			(43		)	(129		)
Other, net	—			2			—			2			(1		)	1
Income (loss) before income taxes	198			83			(3		)	80			(75		)	203
Income tax expense (benefit)³	55									7			(14		)	48
Net income (loss)	143									73			(61		)	155
Add back:
Depreciation, amortization and accretion	478			108			52			160			24			662
(Gain) loss on asset disposals, net	5			(3		)	1			(2		)	—			3
(Gain) loss on license sales and exchanges, net	(18		)	—			—			—			—			(18		)
Interest expense	87			(1		)	—			(1		)	43			129
Income tax expense (benefit)³	55									7			(14		)	48
Adjusted EBITDA⁴	$	750		$	186		$	50		$	236		$	(7	)	$	979

Capital expenditures	$	274		$	103		$	37		$	140		$	16		$	430

Numbers may not foot due to rounding.



				TDS Telecom
Nine Months Ended or as of September 30, 2017	U.S. Cellular			Wireline		Cable		TDS Telecom Total²		Corporate, Eliminations and Other			Total
(Dollars in millions)
Operating revenues
Service	$	2,223		$	537	$	152	$	689	$	64		$	2,976
Equipment and product sales	639			1		—		1		120			760
Total operating revenues	2,862			538		152		690		184			3,736
Cost of services (excluding Depreciation, amortization and accretion reported below)	549			194		73		266		59			874
Cost of equipment and products	749			2		—		2		97			848
Selling, general and administrative⁵	1,041			147		39		185		23			1,249
Depreciation, amortization and accretion	460			114		32		146		26			632
Loss on impairment of goodwill⁶	370			—		—		—		(108		)	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)⁵	(301		)	81		7		88		88			(125		)
Equity in earnings of unconsolidated entities	101			—		—		—		—			101
Interest and dividend income	6			4		—		4		2			12
Interest expense	(85		)	—		—		—		(43		)	(128		)
Other, net⁵	1			3		—		2		—			3
Income (loss) before income taxes	(278		)	88		7		95		46			(137		)
Income tax expense (benefit)³	(19		)					37		21			39
Net income (loss)	(259		)					58		25			(176		)
Add back:
Depreciation, amortization and accretion	460			114		32		146		26			632
Loss on impairment of goodwill⁶	370			—		—		—		(108		)	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			—		—		—		43			128
Income tax expense (benefit)³	(19		)					37		21			39
Adjusted EBITDA⁴	$	631		$	202	$	41	$	243	$	7		$	881

Capital expenditures	$	257		$	91	$	35	$	127	$	19		$	402

Numbers may not foot due to rounding.


¹	As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASU 2014-09, but 2017 amounts remain as previously reported, except as specifically stated. See Note 2 — Revenue Recognition for additional information.


²	TDS Telecom Total includes eliminations between the Wireline and Cable segments.


³	Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. 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	ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior year numbers have been recast to conform to this standard.

⁶

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. The TDS adjustment of $143 million is included in "Corporate, Eliminations and Other." During the three months ended September 30, 2017, TDS also recorded a goodwill impairment of $35 million related to its HMS operations included in "Corporate, Eliminations and Other."