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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
For the transition period from to
Commission File Number 001-33982
LIBERTY INTERACTIVE CORPORATION
(Exact name of Registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of
incorporation or organization)
12300 Liberty Boulevard
Englewood, Colorado
(Address of principal executive offices)
84-1288730
(I.R.S. Employer
Identification No.)
80112
(Zip Code)
Registrant's telephone number, including area code: (720) 875-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Series A QVC Group Common Stock, par value $.01 per share
Series B QVC Group Common Stock, par value $.01 per share
Series A Liberty Ventures Common Stock, par value $.01 per share
Series B Liberty Ventures Common Stock, par value $.01 per share
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
(do not check if
smaller reporting company)
Smaller reporting company ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by nonaffiliates of Liberty Interactive Corporation computed by reference to the last sales price of Liberty Interactive Corporation common
stock, as of the closing of trading on the last trading day prior to June 30, 2016, was approximately $11.2 billion.
The number of outstanding shares of Liberty Interactive Corporation's common stock as of January 31, 2017 was:
QVC Group common stock
Liberty Ventures common stock
Series A
425,210,801
81,150,662
Series B
29,358,638
4,271,867
Documents Incorporated by Reference
The Registrant's definitive proxy statement for its 2017 Annual Meeting of Stockholders is hereby incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
LIBERTY INTERACTIVE CORPORATION
2016 ANNUAL REPORT ON FORM 10‑K
Table of Contents
Part I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Part IV
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II-6
II-24
II-26
II-26
II-26
II-27
III‑1
III‑1
III‑1
III‑1
III‑1
IV‑1
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Item 1. Business.
(a) General Development of Business
PART I.
Liberty Interactive Corporation, formerly known as Liberty Media Corporation, ("Liberty", the “Company”, “we”, “us”
and “our”) owns interests in subsidiaries and other companies which are primarily engaged in the video and online commerce
industries. Through our subsidiaries and affiliates, we operate in North America, Europe and Asia. Our principal businesses
and assets include our consolidated subsidiaries QVC, Inc. ("QVC"), zulily, llc (“zulily”) and Evite, Inc. (“Evite”) and our
equity affiliates FTD Companies, Inc. (“FTD”), HSN, Inc. ("HSN"), LendingTree, Inc. (“LendingTree”) and Liberty
Broadband Corporation (“Liberty Broadband”).
On September 23, 2011, Liberty completed the split-off of a wholly owned subsidiary, Liberty Media Corporation
("LMC") (formerly known as Liberty CapStarz, Inc. and prior thereto known as Liberty Splitco, Inc.) (the "LMC Split-Off").
At the time of the LMC Split-Off, LMC owned all the assets, businesses and liabilities previously attributed to the Capital
and Starz tracking stock groups. The LMC Split-Off was effected by means of a redemption of all of the Liberty Capital
common stock and Liberty Starz common stock of Liberty in exchange for the common stock of LMC. Following the LMC
Split-Off, Liberty and LMC operate as separately publicly traded companies and neither has any stock ownership, beneficial
or otherwise, in the other.
On August 9, 2012, Liberty completed the approved recapitalization of its common stock through the creation of the
Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. In the recapitalization, each holder
of Liberty Interactive Corporation common stock remained a holder of the same amount and series of Liberty Interactive
common stock and received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a
dividend, with cash issued in lieu of fractional shares of Liberty Ventures common stock.
On October 3, 2014, Liberty reattributed from the Interactive Group to the Ventures Group approximately $1 billion in
cash and its Digital Commerce businesses (as defined below), including Backcountry.com, Inc., Bodybuilding.com, LLC
(“Bodybuilding”), CommerceHub, Inc. (then, Commerce Technologies, Inc.) (“CommerceHub”), Provide Commerce, Inc.
(“Provide”), and Evite (collectively, the “Digital Commerce businesses”). Subsequent to the reattribution, the Interactive
Group is now referred to as the QVC Group. The QVC Group has attributed to it Liberty’s wholly-owned subsidiaries QVC
and zulily (as of October 1, 2015) and its approximate 38% interest in HSN, along with cash and certain liabilities. In
connection with the reattribution, the Liberty Interactive tracking stock trading symbol “LINTA” was changed to "QVCA"
and the "LINTB" trading symbol to "QVCB," effective October 7, 2014. Other than the issuance of Liberty Ventures shares
in the fourth quarter of 2014, the reattribution of tracking stock groups has no consolidated impact on Liberty. Effective June
4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group common stock.”
Tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic
performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty
has two tracking stocks, QVC Group common stock and Liberty Ventures common stock, which are intended to track and
reflect the economic performance of the QVC Group and Ventures Group, respectively. While the QVC Group and the
Ventures Group have separate collections of businesses, assets and liabilities attributed to them, no group is a separate legal
entity and therefore no group can own assets, issue securities or enter into legally binding agreements. Holders of tracking
stock have no direct claim to the group's stock or assets and are not represented by separate boards of directors. Instead,
holders of tracking stock are stockholders of the parent corporation, with a single board of directors and subject to all of the
risks and liabilities of the parent corporation.
On August 27, 2014, Liberty completed the spin-off to holders of its Liberty Ventures common stock shares of its former
wholly-owned subsidiary, Liberty TripAdvisor Holdings, Inc. (“TripAdvisor Holdings”) (the “TripAdvisor Holdings Spin-
Off”), which was effected as a pro-rata dividend of shares of TripAdvisor Holdings to the stockholders of Liberty’s Series A
and Series B Liberty Ventures common stock. At the time of the TripAdvisor Holdings Spin-Off, TripAdvisor Holdings was
comprised of Liberty’s former 22% economic and 57% voting interest in TripAdvisor, Inc.
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(“TripAdvisor”), as well as BuySeasons, Inc., Liberty’s former wholly-owned subsidiary, and a corporate level net debt
balance of $350 million. Concurrently with TripAdvisor Holdings’ execution of certain margin loans in connection with the
TripAdvisor Holdings Spin-Off, Liberty and TripAdvisor Holdings entered into a promissory note that expires in 2017
pursuant to which TripAdvisor Holdings may request, if the closing price per share of TripAdvisor common stock were to
fall below certain minimum values, up to $200 million in funds from Liberty. The TripAdvisor Holdings Spin-Off has been
recorded at historical cost due to the pro rata nature of the distribution. Following the completion of the TripAdvisor
Holdings Spin-Off, Liberty and TripAdvisor Holdings operate as separate, publicly traded companies, and neither has any
stock ownership, beneficial or otherwise, in the other. The consolidated financial statements of Liberty have been prepared to
reflect TripAdvisor Holdings as discontinued operations.
On October 1, 2015, Liberty acquired zulily, inc. (now known as zulily, llc) for consideration of approximately $2.3
billion, comprised of $9.375 of cash and 0.3098 newly issued shares of Series A QVC Group common stock for each zulily
share, with cash paid in lieu of any fractional shares. zulily is attributed to the QVC Group. zulily is an online retailer
offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every
day.
On May 18, 2016, Liberty completed a $2.4 billion investment in Liberty Broadband in connection with the merger of
Charter Communications, Inc. ("Legacy Charter") and Time Warner Cable Inc. ("TWC"). The proceeds of this investment
were used by Liberty Broadband to fund, in part, its acquisition of $5 billion of stock in the new public parent company
(“Charter”) of the combined enterprises. Liberty, along with third party investors, all of whom invested on the same terms as
Liberty, purchased newly issued shares of Liberty Broadband Series C common stock at a per share price of $56.23, which
was determined based upon the fair value of Liberty Broadband's net assets on a sum-of-the parts basis at the time the
investment agreements were executed. Liberty's investment in Liberty Broadband was funded using cash on hand and is
attributed to the Ventures Group. See note 9 for additional information related to this investment.
Liberty also exchanged, in a tax-free transaction, its shares of TWC common stock for shares of Charter Class A
common stock, on a one-for-one basis, and Liberty has granted to Liberty Broadband a proxy and a right of first refusal with
respect to the shares of Charter Class A common stock held by Liberty in the exchange.
On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former
wholly-owned subsidiary CommerceHub. The CommerceHub Spin-Off was accomplished by the distribution by Liberty of a
dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each outstanding share of Liberty’s Series A
Liberty Ventures common stock as of 5:00 p.m., New York City time, on July 8, 2016 (such date and time, the “Record
Date”), (ii) 0.1 of a share of CommerceHub’s Series B common stock for each outstanding share of Liberty’s Series B
Liberty Ventures common stock as of the Record Date and (iii) 0.2 of a share of CommerceHub’s Series C common stock for
each outstanding share of Series A and Series B Liberty Ventures common stock as of the Record Date, in each case, with
cash paid in lieu of fractional shares. This transaction has been recorded at historical cost due to the pro rata nature of the
distribution. The Internal Revenue Service (“IRS”) completed its review of the CommerceHub Spin-Off and notified Liberty
that it agreed with the nontaxable characterization of the CommerceHub Spin-Off. CommerceHub is included in the
Corporate and other segment through July 22, 2016 and is not presented as a discontinued operation as the CommerceHub
Spin-Off did not represent a strategic shift that had a major effect on Liberty’s operations and financial results.
On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its
former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). Expedia Holdings is comprised of,
among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned subsidiary
Bodybuilding. On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed
$299 million, net of certain debt related costs, to Liberty on November 4, 2016. The Expedia Holdings Split-Off was
accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A Liberty Ventures common stock for
0.4 of a share of Expedia Holdings Series A common stock at 5:00 p.m., New York City time, on November 4, 2016 (such
date and time, the “Redemption Date”) and (ii) 0.4 of each outstanding share of Liberty’s Series B Liberty Ventures common
stock for 0.4 of a share of Expedia Holdings Series B common stock on the Redemption Date, in each case, with cash paid in
lieu of any fractional shares of Liberty Ventures common stock or Expedia Holdings common stock (after taking into account
all of the shares owned of record by each holder thereof, as applicable). The IRS
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completed its review of the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable
characterization of the Expedia Holdings Split-Off.
Liberty views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued
operations presentation. Based on a quantitative analysis, the split-off of Liberty’s interest in Expedia represents a strategic
shift that has a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by
Expedia. Accordingly, Liberty’s interest in Expedia is presented as a discontinued operation. The disposition of Bodybuilding
as part of the Expedia Holdings Split-Off did not have a major effect on Liberty’s historical results nor is it expected to have
a major effect on Liberty’s future operations. The disposition of Bodybuilding did not represent a strategic shift in Liberty’s
operations. Accordingly, Bodybuilding is not presented as a discontinued operation.
* * * * *
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing
strategies; new service offerings; revenue growth at QVC; the recoverability of our goodwill and other long-lived assets; our
projected sources and uses of cash; and the anticipated impact of certain contingent liabilities related to legal and tax
proceedings and other matters arising in the ordinary course of business. In particular, statements under Item 1. "Business,"
Item 1A. "Risk-Factors," Item 2. "Properties," Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" contain forward-looking
statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that
could cause actual results or events to differ materially from those anticipated:
· customer demand for our products and services and our ability to adapt to changes in demand;
· competitor responses to our products and services;
· increased digital TV penetration and the impact on channel positioning of our programs;
· the levels of online traffic to our businesses' websites and our ability to convert visitors into consumers or
contributors;
· uncertainties inherent in the development and integration of new business lines and business strategies;
· our future financial performance, including availability, terms and deployment of capital;
· our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we
acquire;
· the ability of suppliers and vendors to deliver products, equipment, software and services;
· the outcome of any pending or threatened litigation;
· availability of qualified personnel;
· changes in, or failure or inability to comply with, government regulations, including, without limitation,
regulations of the Federal Communications Commission (“FCC”), and adverse outcomes from regulatory
proceedings;
· changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors;
· domestic and international economic and business conditions and industry trends;
· changes in tariffs, trade policy and trade relations following the 2016 U.S. presidential election and the vote by the
U.K. to exit from the European Union (“Brexit”);
· consumer spending levels, including the availability and amount of individual consumer debt;
· changes in distribution and viewing of television programming, including the expanded deployment of personal
video recorders, video on demand and Internet protocol (“IP”) television and their impact on home shopping
programming;
rapid technological changes;
·
· failure to protect the security of personal information about our customers, subjecting us to potentially costly
government enforcement actions or private litigation and reputational damage;
· the regulatory and competitive environment of the industries in which we operate;
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· threatened terrorist attacks, political unrest in international markets and ongoing military action around the world;
and
· fluctuations in foreign currency exchange rates.
These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Annual
Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-
looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in
events, conditions or circumstances on which any such statement is based. When considering such forward-looking
statements, you should keep in mind the factors described in Item 1A, "Risk Factors" and other cautionary statements
contained in this Annual Report. Such risk factors and statements describe circumstances which could cause actual results to
differ materially from those contained in any forward-looking statement.
This Annual Report includes information concerning public companies in which we have controlling and non-controlling
interests that file reports and other information with the Securities and Exchange Commission (“SEC”) in accordance with
the Securities Exchange Act of 1934, as amended. Information in this Annual Report concerning those companies has been
derived from the reports and other information filed by them with the SEC. If you would like further information about these
companies, the reports and other information they file with the SEC can be accessed on the Internet website maintained by
the SEC at www.sec.gov. Those reports and other information are not incorporated by reference in this Annual Report.
(b) Financial Information About Segments
Through our ownership of interests in subsidiaries and other companies, we are primarily engaged in the video and
online commerce industries. Each of these businesses is separately managed.
We identify our reportable segments as (A) those consolidated subsidiaries that represent 10% or more of our annual
consolidated revenue, Adjusted OIBDA (defined in Part II, Item 7 of this report) or total assets and (B) those equity method
affiliates whose share of earnings represent 10% or more of our annual pre-tax earnings. Financial information related to our
operating segments can be found in note 19 to our consolidated financial statements found in Part II of this report.
(c) Narrative Description of Business
The following table identifies our more significant subsidiaries and minority investments:
Consolidated Subsidiaries
QVC, Inc.
zulily, llc
Evite, Inc.
Equity Method Investments
FTD Companies, Inc. (Nasdaq: FTD)
HSN, Inc. (Nasdaq: HSNI)
LendingTree, Inc. (Nasdaq: TREE)
Liberty Broadband Corporation (Nasdaq: LBRDA; LBRDK)
QVC
QVC, a wholly-owned subsidiary, markets and sells a wide variety of consumer products primarily through live
merchandise-focused televised shopping programs distributed to approximately 362 million worldwide households each day
(including the joint venture in China as discussed below in further detail) and via its websites, including QVC.com, and other
interactive media, such as mobile applications. The name, QVC, stands for "Quality, Value and Convenience," which is what
QVC strives to deliver to its customers. QVC’s operating strategy is to create a premier multimedia lifestyle brand and
shopping destination for its customers, further penetrate its core customer base, generate new customers, enhance
programming distribution offerings and expand internationally to drive revenue and profitability. For the year ended
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December 31, 2016, approximately 93% of its worldwide shipped sales were from repeat and reactivated customers
(i.e., customers who made a purchase from QVC during the prior twelve months and customers who previously made a
purchase from QVC but not during the prior twelve months). In the same period, QVC attracted approximately 3.1 million
new customers. QVC’s global e-commerce operation comprised $4.0 billion, or 46%, of its consolidated net revenue for the
year ended December 31, 2016.
QVC markets its products in an engaging, entertaining format primarily through merchandise-focused live television
programs and interactive features on its websites and other interactive media. In the United States (“U.S.”), QVC distributes
its programming live 24 hours per day, 364 days per year and presents on average 770 products every week (such U.S.
operations, “QVC-U.S”). Internationally, QVC distributes live programming 8 to 24 hours per day, depending on the
market. QVC classifies its products into six groups: home, apparel, beauty, accessories, jewelry and electronics.
Product category
Home
Apparel
Beauty
Accessories
Jewelry
Electronics
Total
2016
Years ended December 31,
2015
2014
33%
19%
17%
13%
9%
9%
100%
33%
17%
17%
13%
10%
10%
100%
32%
16%
17%
12%
12%
11%
100%
Many of QVC's brands are exclusive, while others are created by well-known designers. It is QVC's product sourcing
team's mission to research and locate compelling and differentiated products from manufacturers who have sufficient scale to
meet anticipated demand. QVC offers many QVC-exclusive products, as well as popular brand name and lesser known
products available from other retailers. Many of its products are endorsed by celebrities, designers and other well-known
personalities who often join its presenters to personally promote their products and provide lead-in publicity on their own
television shows. QVC believes that its ability to demonstrate product features and present “faces and places” differentiates
and defines the QVC shopping experience. QVC closely monitors customer demand and its product mix to remain well-
positioned and relevant in popular and growing retail segments, which QVC believes is a significant competitive advantage
relative to competitors who operate brick-and-mortar stores.
QVC does not depend on any single supplier or designer for a significant portion of its inventory purchases.
Since its inception, QVC has shipped over 1.95 billion packages in the U.S. alone. QVC operates nine distribution
centers and seven call centers worldwide. In the U.S., QVC is able to ship approximately 91% of its orders within two days
of the order placement. Globally, QVC is able to ship approximately 93% of its orders within two days of the order
placement. In 2016, QVC's work force of approximately 17,700 employees handled approximately 156 million customer
calls, shipped approximately 183 million units globally and served approximately 13 million customers. QVC believes its
long-term relationships with major U.S. television distributors, including cable operators (e.g., Comcast and Cox), satellite
television providers (e.g., DISH Network and DIRECTV) and telecommunications companies (e.g., Verizon and AT&T
(excluding DIRECTV)), provide it with broad distribution, favorable channel positioning and significant competitive
advantages. QVC believes that its significant market share, brand awareness, outstanding customer service, repeat customer
base, international reach and scalable infrastructure distinguishes QVC from its competitors.
QVC-U.S.'s live televised shopping programs are distributed nationally, 24 hours per day, 364 days per year, to
approximately 104 million television households. QVC distributes its programming to approximately 96% of television
households subscribing to services offered by television distributors. QVC-U.S. programming is also available on QVC.com,
its U.S. website, and mobile applications via streaming video; over-the air broadcasters in 93 markets; and the Roku
platform. QVC-U.S., including QVC.com, contributed $6.1 billion, or 70.5%, of consolidated net revenue, $915 million of
operating income and $1.4 billion of Adjusted OIBDA (defined in Part II, Item 7 of this report) for the year ended
December 31, 2016.
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In March 2013, QVC-U.S. launched over-the-air broadcasting in designated U.S. markets that can be accessed by any
television household with a digital antennae in such markets, regardless of whether it subscribes to a paid television
service. This allows QVC-U.S. to reach new customers who previously did not have access to the program through other
television platforms.
In August 2013, QVC-U.S. launched an additional channel, QVC Plus, which is being distributed through cable and
satellite systems. The channel allows viewers to have access to a broader range of QVC programming options as well as
more relevant programming for viewers in differing time zones.
In October 2016, QVC-U.S. launched another additional channel, Beauty iQ, which is being distributed through satellite
and streaming platforms. The channel and supporting platforms are dedicated to a complete beauty shopping experience for
customers.
QVC established QVC-U.S. as the televised shopping leader after building a track record of outstanding quality and
customer service, establishing favorable channel positioning and generating repeat business from its core customer
base. QVC estimates its share of the U.S. televised shopping revenue in 2016, among QVC-U.S. and its two primary
televised shopping competitors HSN and EVINE Live Inc. ("EVINE Live") to be approximately two-thirds. QVC believes
QVC-U.S. also compares favorably in terms of sales to general, non-television based retailers due to its extensive customer
reach and efficient cost structure.
QVC.com, launched in 1996, complements QVC-U.S.'s televised shopping programs by allowing consumers to purchase
a wide assortment of goods offered on its televised programs, as well as other products that are available only on QVC.com.
QVC views e-commerce (QVC.com and mobile devices) as a natural extension of its business, allowing it to stream live
video and offer on-demand video segments of items recently presented live on its televised programs. QVC.com allows
shoppers to browse, research, compare and perform targeted searches for products, control the order‑entry process and
conveniently access their QVC account. For the year ended December 31, 2016, approximately 76% of new U.S. customers
made their first purchase through QVC.com (including mobile).
QVC's televised shopping programs reached approximately 137 million television households outside of the U.S.,
primarily in Germany, Austria, Japan, the United Kingdom (the “U.K.”), the Republic of Ireland, Italy and France. In
addition, QVC's joint venture in China reached approximately 121 million homes. The programming created for most of
these markets is also available via streaming video on its international websites and mobile applications. QVC's international
business employs product sourcing teams who select products tailored to the interests of each local market. For the year
ended December 31, 2016, QVC's international operations generated $2.6 billion, or 29.5%, of consolidated net revenue,
$289 million of operating income and $405 million of Adjusted OIBDA and QVC's international websites generated
$854 million, or 33.3%, of its total international net revenue.
On July 4, 2012, QVC entered into a joint venture with Beijing‑based CNR Media Group, formerly known as China
Broadcasting Corporation, a limited liability company owned by China National Radio (“CNR”), China's government‑owned
radio division. The joint venture, CNR Home Shopping Co., Ltd. (“CNRS”), is owned 49% by QVC and 51% by CNR
through subsidiaries of each company. CNRS operates a retailing business in China through a shopping television channel
with an associated website. This joint venture combines CNRS's knowledge of the digital shopping market and consumers in
China with QVC's global experience and know-how in multimedia retailing. CNRS distributes live programming for 15
hours each day and recorded programming for nine hours each day. The CNRS joint venture is accounted for as an equity
method investment.
QVC distributes its television programs, via satellite and optical fiber, to cable television and/or direct-to-home satellite
system operators for retransmission to their subscribers in the U.S., Germany, Japan, the U.K., Italy, France and neighboring
countries. QVC also transmits its television programs over digital terrestrial broadcast television to viewers throughout Italy,
the U.K. and to viewers in certain geographic regions in the U.S. and Germany. In the U.S., QVC uplinks its analog and
digital programming transmissions using a third-party service. Both transmissions are uplinked to protected, non-preemptible
transponders on U.S. satellites. "Protected" status means that, in the event of a transponder failure, the signal will be
transferred to a spare transponder or, if none is available, to a preemptible transponder located on the same satellite or, in
certain cases, to a transponder on another satellite owned by the same service provider if one is available at the time of the
failure. "Non-preemptible" status means that, in the event of a transponder failure, QVC's transponders cannot be preempted
in favor of a user of a failed transponder, even another user with "protected status." The international
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business units each obtain uplinking services from third parties and transmit their programming to non-preemptible
transponders on international satellites. The transponder service agreements for the U.S. transponders expire at the earlier of
the end of the lives of the satellites or the service agreements. The service agreements in the U.S. expire between 2019 and
2023. The transponder service agreements for the international transponders expire between 2019 and 2024.
QVC continually seeks to expand and enhance its television and e-commerce platforms, as well as to further its
international operations and multimedia capabilities. QVC launched QVCHD in the U.S. in April 2008, and in May 2009,
became the first U.S. multimedia retailer to offer a native high definition (“HD”) service. QVCHD is a HD simulcast of
QVC's U.S. telecast utilizing the full 16x9 screen ratio, while keeping the side panel for additional information. HD
programming allows QVC to utilize a typically wider television screen with crisper and more colorful images to present a
larger “storefront,” which QVC believes captures the attention of channel “surfers” and engages its customers. In the U.S.,
QVCHD reaches approximately 80 million television households. QVC continues to develop and launch features to further
enrich the television viewing experience.
Beyond the main live programming QVC channels, including QVCHD, in the U.S., Germany and the U.K. also
broadcast pre-recorded and live shows on additional channels that offer viewers access to a broader range of QVC
programming options. These channels include QVC Plus and Beauty iQ in the U.S., QVC Beauty & Style and QVC Plus in
Germany, and QVC Beauty, QVC Extra, QVC Style and QVC +1 in the U.K.
QVC enters into long-term affiliation agreements with certain of its television distributors who downlink its
programming and distribute the programming to customers. QVC's affiliation agreements with both domestic and
international distributors have termination dates ranging from 2017 to 2027. QVC's ability to continue to sell products to its
customers is dependent on its ability to maintain and renew these affiliation agreements in the future. Although QVC is
typically successful in obtaining and renewing these agreements, it does not have distribution agreements with some of the
distributors that carry its programming. In total, QVC is currently providing programming without affiliation agreements to
distributors representing approximately 10% of its U.S. distribution, and short-term, rolling 90 day letters of extension, to
distributors who represent approximately 27% of its U.S. distribution. Some of its international programming may continue
to be carried by distributors after the expiration dates on its affiliation agreements with such distributors have passed.
In return for carrying QVC's signals, each programming distributor in the U.S. receives an allocated portion, based upon
market share, of up to 5% of the net sales of merchandise sold via the television programs and from certain Internet sales to
customers located in the programming distributor's service areas. Internationally, programming distributors predominately
receive an agreed-upon annual fee, a monthly or yearly fee per subscriber regardless of the net sales, a variable percentage of
net sales or some combination of the above arrangements.
In addition to sales-based commissions or per-subscriber fees, QVC also makes payments to distributors primarily in the
U.S. for carriage and to secure positioning within a broadcast area or within the general entertainment area on the
distributor's channel line-up. QVC believes that a portion of its sales are attributable to purchases resulting from channel
“surfing” and that a channel position near broadcast networks and more popular cable networks increases the likelihood of
such purchases. As technology evolves, QVC will continue to monitor optimal channel placement and attempt to negotiate
agreements with its distributors to maximize the viewership of its television programming.
QVC enjoys a very loyal customer base, as demonstrated by the fact that for the twelve months ended December 31,
2016, approximately 87% of its worldwide shipped sales came from repeat customers (i.e., customers who made a purchase
from QVC during the prior twelve months), who spent an average of $1,247 each during this period. An additional 6% of
shipped sales in that period came from reactivated customers (i.e., customers who previously made a purchase from QVC,
but not during the prior twelve months).
Customer growth was essentially flat in 2016. On a trailing twelve month basis, total consolidated customers (excluding
the joint venture in China) were approximately 12.7 million, which includes approximately 8.1 million in the U.S. and
approximately 4.6 million internationally. QVC believes its core customer base represents an attractive demographic target
market. Based on internal customer data, approximately 53% of its more than 8.1 million U.S. customers for the twelve
months ended December 31, 2016 were women between the ages of 35 and 64.
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QVC strives to be prompt and efficient in order taking and fulfillment. QVC has two domestic phone centers, located in
San Antonio, Texas and Chesapeake, Virginia, that can direct calls from one call center to the other as volume mandates.
Internationally, QVC also has one phone center in each of Japan, the U.K. and Italy, and two call centers in Germany. For
France, order taking is handled by a third party located in Portugal. Many markets also utilize home agents to handle calls,
allowing staffing flexibility for peak hours. In addition, QVC utilizes computerized voice response units, which handle
approximately 26% of all orders taken on a worldwide basis.
In addition to taking orders from its customers through phone centers and online, QVC continues to expand its ordering
platforms. QVC is expanding mobile device ordering capabilities and over the past several years has launched iPhone, iPad,
Apple Watch, Android, Blackberry and Apple TV applications, a WAP (wireless application protocol) mobile website and a
robust SMS (short message services) program. On a global basis, customers placed approximately 28% of all orders directly
through their mobile devices in 2016.
Through QVC's nine worldwide distribution centers, QVC shipped approximately 93% of its orders within two days of
the order placement in 2016. QVC's domestic distribution centers are located in Suffolk, Virginia; Lancaster, Pennsylvania;
Rocky Mount, North Carolina; Florence, South Carolina; and Ontario, California. QVC’s domestic distribution centers and
dropship partners have shipped nearly 814,000 units and over 733,000 packages in a single day. QVC also has distribution
centers in Sakura-shi, Chiba, Japan, Hücklehoven, Germany, Knowsley, U.K. and Castel San Giovanni, Italy.
QVC has built a scalable operating infrastructure focused on sustaining efficient, flexible and cost-effective sale and
distribution of its products. Since its physical store locations are minimal, QVC requires lower inventory levels and capital
expenditures compared to traditional brick-and-mortar retailers. In recent years, QVC has made significant investments in its
distribution centers that it believes will accommodate its foreseeable growth needs. Further, since QVC has no set “floor
plan” and can closely manage inventory levels at its centralized warehouses, QVC believes it has the flexibility to analyze
and react quickly to changing trends and demand by shifting programming time and product mix. QVC's cost structure is
highly variable, which QVC believes allows it to consistently achieve attractive margins relative to brick-and-mortar
retailers.
QVC's web and mobile platforms are fully integrated with its televised programming and product distribution
capabilities. QVC's web and mobile platform features include a live video stream of its television programming, full
integration with its order fulfillment and its product branding, as well as the thematic offerings and events that have become
fundamental to its televised programming.
Third party carriers transport QVC's packages from its distribution centers to its customers. In each market where QVC
operates, it has negotiated long-term contracts with shipping companies, which in certain circumstances provides for
favorable shipping rates.
QVC operates in a rapidly evolving and highly competitive retail business environment. Based on domestic net revenue
for the twelve months ended December 31, 2016, QVC is the leading television retailer in the U.S. and generates
substantially more net revenue than its two closest televised shopping competitors, HSN (an entity in which we have a 38%
ownership interest as of December 31, 2016) and EVINE Live. QVC's international operations face similar competition in
their respective markets, such as Shop Channel in Japan, HSE 24 in Germany and Italy, Ideal World in the U.K., and M6
Boutique in France. Additionally, QVC has numerous and varied competitors at the national and local levels, ranging from
large department stores to specialty shops, electronic retailers, direct marketing retailers, wholesale clubs, discount retailers,
infomercial retailers, Internet retailers, and mail-order and catalog companies.
QVC also competes for access to customers and audience share with other providers of televised, online and hard copy
entertainment and content. The price and availability of other programming and the conversion to digital programming
platforms may unfavorably affect the placement of its programming in the channel line-ups of its distributors, and may affect
its ability to obtain distribution agreements with small cable distributors. Competition from other programming also affects
the compensation that must be paid to distributors for carriage, which continues to increase. Principal competitive factors for
QVC include (i) value, quality and selection of merchandise; (ii) customer experience, including customer service and
reliability of fulfillment and delivery services and (iii) convenience and accessibility of sales channels.
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QVC regards its trademarks, service marks, copyrights, domain names, trade dress, trade secrets, proprietary
technologies and similar intellectual property as critical to its success. QVC relies on a combination of trademark and
copyright law, trade‑secret protection, and confidentiality and/or license agreements with its employees, customers, suppliers,
affiliates and others to protect these proprietary rights. QVC has registered, or applied for the registration of, a number of
domain names, trademarks, service marks and copyrights by U.S. and foreign governmental authorities and vigorously
protects its proprietary rights against infringement.
Domestically, QVC has registered trademarks and service marks for a variety of items including, but not limited to its
brand name, "QVC," "Quality Value Convenience," "Find What You Love, Love What You Find," the "Q QVC Ribbon
Logo," "Q" and its proprietary products sold such as "Arte D'Oro", "Cook's Essentials", "Denim & Co.," "Diamonique,"
“Nature’s Code,” "Northern Nights" and "Ultrafine Silver." Similarly, foreign registrations have been obtained for many
trademarks and service marks for its brand name and propriety products including, but not limited to, "QVC" the "Q QVC
Ribbon Logo," "Q," "Breezies," "Denim & Co.," "Diamonique" and "Northern Nights." QVC considers the service mark for
the "QVC" name the most significant trademark or service mark held by it because of its impact on market awareness across
all of its geographic markets and on customers' identification with QVC. As with all domestic trademarks or service marks,
QVC's trademark and service mark registrations in the U.S. are for a ten year period and are renewable every ten years, prior
to their respective expirations, as long as the trademarks or service marks are used in the regular course of trade.
QVC's business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday
shopping. In recent years, QVC has earned, on average, between 22% and 24% of its global revenue in each of the first three
quarters of the year and between 30% and 32% of its global revenue in the fourth quarter of the year.
zulily llc
On October 1, 2015, we acquired 100% of zulily. zulily is an online retailer offering customers a fun and entertaining
shopping experience with a fresh selection of new product styles launched each day. The zulily website was launched in
January 2010 with the goal of revolutionizing the way moms shop. Through its desktop and mobile websites and mobile
applications, zulily helps its customers discover new and unique products at great values that they would likely not find
elsewhere. zulily’s merchandise includes women’s, children’s and men’s apparel and other products such as home, beauty and
personalized products. zulily sources its merchandise from thousands of vendors, including emerging brands and smaller
boutique vendors, as well as larger national brands. By bringing together millions of customers and a daily selection of
products chosen from its vendor base, zulily has built a large scale and uniquely curated marketplace.
Every morning, zulily launches a variety of flash sales events. These events feature thousands of product styles from
different vendors and typically last for 72 hours. The day’s events are kicked off by an early morning email to zulily’s email
subscribers and “push” communication to users of zulily’s mobile applications. Offerings are typically only available for a
limited time and in a limited quantity, creating urgency to browse and purchase. zulily’s products are sourced from a variety
of vendors, ranging from smaller boutiques or emerging brands to larger, nationally known brands that appeal to its
customers and draw new customers to its sites.
Before zulily launches an event, zulily shoots or obtains photographs of the merchandise and its editorial team writes
about the merchandise. The experience, creativity, resourcefulness and efficiency of zulily’s merchandising, creative and
operations teams enable zulily to feature thousands of product styles each quarter. zulily works to create the most compelling
price points for its customers, with the average item offered for significant discount off the manufacturer’s suggested or
comparison retail price. zulily then uses its proprietary technology, data analytics and personalization tools to segment its
audience, offering each customer a curated and optimized shopping experience that features brands, products and events that
it believes are most relevant for that customer.
zulily acquires new email subscribers through a diverse set of paid and unpaid marketing channels, including affiliate
channels and partners, customer referrals, direct navigation, display advertising, key word search campaigns, search engine
optimization, social media and television ads. Core to its business model is that zulily acquires customers once via paid and
unpaid sources, and then drives engagement and repeat purchases from those customers over a long period of time through
the sending of daily emails and mobile “push” communications.
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Continual innovation through investment in technology is core to zulily’s business. zulily uses its technology platform to
improve the experience of its customers and vendors, increase the purchase frequency and average order size and optimize
the efficiency of its business operations. zulily’s technology team is focused on rapid innovation through advanced agile
software development processes. zulily’s scalable platform uses custom-built and third-party technologies to support its
specific customer and vendor requirements, including handling significant spikes in site traffic and transactions on a daily
basis, and the rapid and complex order supply chain needs that are unique to zulily’s flash sales and minimal inventory
model. zulily believes it can quickly scale its infrastructure to accommodate significantly higher volumes of site traffic,
customers, orders and the overall growth in its business.
To best serve its customers and vendors, zulily has a custom, fully integrated fulfillment infrastructure consisting of
receiving, sorting, inventory management and repackaging systems which are coordinated by proprietary fulfillment
management software. zulily’s supply chain solution efficiently handles the small-to-medium lot sizes and high inventory
turnover required by constantly changing, limited-time product offerings. zulily operates a minimal inventory, intermediary
model where it typically takes customer orders before purchasing inventory from vendors. As a result, zulily is able to offer a
much larger selection of products to customers and to generate greater sales for vendors, who are able to match a broader
range of their product supply to actual customer demand.
zulily views its target market broadly and competes with any retailer where its customers shop. It faces significant
competition from both online and offline retailers, competing on: product curation and selection, personalization, value,
convenience, ease of use, consumer experience, vendor satisfaction and shipping time and cost.
zulily relies on laws and regulations, contractual restrictions, copyrights, and trademarks to protect its intellectual
property and proprietary rights. zulily’s employees and contractors also typically enter into agreements to assign to zulily the
inventions and content they produce in performing their jobs. zulily controls access to confidential information by entering
into confidentiality agreements with its employees, contractors and third parties, such as vendors, service providers,
individuals and entities that may be exploring a business relationship with zulily. Despite the protection of general
intellectual property law and its contractual restrictions, it may be possible for a third party to copy or otherwise obtain and
use zulily’s intellectual property without zulily’s authorization.
zulily has registered numerous Internet domain names related to its business. In addition, zulily pursues the registration
of its trademarks in the U.S. and certain other locations outside of the U.S.; however, effective intellectual property protection
or enforcement may not be available in every country in which zulily’s products and services are made available in the future.
In the U.S. and certain other countries, zulily has registered or has applications pending for its key trademarks: zulily, the
zulily design mark and the “Z” design associated with its mobile applications.
zulily’s results are impacted by a pattern of increased sales during the back-to-school shopping season in the third quarter
and holiday shopping season in the fourth quarter, which it expects would result in lower sequential growth in the first
quarter. The fourth quarter accounted for approximately 30.2% and 31.3% of zulily’s revenue for the years ended December
31, 2016 and 2015, respectively.
Evite
With over 25 million registered users, Evite (www.evite.com), a wholly owned subsidiary, is an online invitation and
social event planning service on the Web. Evite has sent over 2 billion event invitations in its history, enabling 3 billion
unique face-to-face connections. Evite makes getting together effortless and more memorable for its over one hundred
million annual users, sending 20,000 invitations every hour and handling hundreds of millions of RSVPs every year. Evite
offers a free private sharing feed in every invitation that allows users to share photos and conversations before, during and
after an event. Evite also provides free thank you notes, instant gifting, one-click donations and video content. Launched in
1998, Evite is headquartered in Los Angeles.
FTD
FTD is a premier floral and gifting company that provides floral, gift and related products and services to consumers,
retail florists, and other retail locations and companies in need of floral and gifting solutions. FTD uses the highly-recognized
FTD® and Interflora® brands, both supported by the Mercury Man logo. While FTD primarily operates in the
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U.S., Canada, the U.K., and the Republic of Ireland, FTD has a worldwide presence in nearly 40,000 floral shops in 150
countries. FTD’s portfolio of brands also includes ProFlowers, Sharri’s Berries, Personal Creations, RedEnvelope, Flying
Flowers, Flowers Direct, Ink Card, Postagram and Gifts.com.
Liberty obtained its ownership interest in FTD during December 2014 in a transaction whereby Liberty exchanged its
former wholly-owned subsidiary Provide for cash and a 35% ownership interest in FTD. We owned approximately 37% of
the outstanding common stock of FTD as of December 31, 2016. We have entered into an agreement with FTD pursuant to
which, among other things, we have the right to proportional representation on FTD’s board of directors based on our
ownership interest in FTD. In connection with this transaction, FTD increased the size of its board of directors from seven to
11 directors. Liberty nominated the four additional directors to the board of directors.
HSN
HSN became a separate public company in August 2008 in connection with the separation of IAC/InterActiveCorp
(“IAC”) into five separate companies. HSN is an interactive multi-channel retailer that markets and sells a wide range of
third party and proprietary merchandise directly to consumers through various platforms including (i) television home
shopping programming broadcast on the HSN television networks and other direct-response television marketing;
(ii) catalogs, consisting primarily of the Cornerstone portfolio of leading print catalogs which includes Ballard Designs,
Frontgate, Garnet Hill, Grandin Road and Improvements; (iii) websites, which consist primarily of HSN.com,
joymangano.com and the five branded websites operated by Cornerstone; (iv) mobile applications; (v) retail and outlet stores;
and (vi) wholesale distribution of certain proprietary products to other retailers. Chasing Fireflies and TravelSmith, two of the
apparel brands in the Cornerstone portfolio, were sold in September 2016.
We own approximately 38% of the outstanding common stock of HSN. We have entered into an agreement with HSN
pursuant to which, among other things, we have the right to nominate 20% of the members of HSN's board of directors. We
have nominated two of the current 10 board members.
LendingTree
LendingTree was also spun off by IAC in August 2008. LendingTree is the owner of several brands and businesses that
provide information, tools, advice, products and services for critical transactions in their customers' lives. LendingTree’s
family of brands includes: LendingTree®, GetSmart®, DegreeTree®, LendingTreeAutos, DoneRight®, ServiceTree® and
InsuranceTree®. Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, home
services, education, auto and other financial products from multiple business and professionals who compete for their
business. LendingTree is headquartered in Charlotte, North Carolina.
We own approximately 24% of the outstanding common stock of LendingTree. We have entered into an agreement with
LendingTree pursuant to which, among other things, we have the right to nominate 20% of the members of LendingTree’s
board of directors. We have nominated two of the seven current board members.
Liberty Broadband Corporation
Liberty Broadband was spun off by LMC in November 2014. Liberty Broadband consists of its interest in Charter and
its subsidiary Skyhook Holding, Inc. Charter is one of the largest providers of cable services in the U.S., offering a variety of
entertainment, information and communications solutions to residential and commercial customers. Skyhook provides mobile
positioning and contextual location intelligence solutions.
In May 2016, Liberty completed a $2.4 billion investment in Liberty Broadband in connection with the merger of
Legacy Charter and TWC. We own approximately 23% of the outstanding common stock of Liberty Broadband. Due to
overlapping boards of directors and management, Liberty has been deemed to have significant influence over Liberty
Broadband (for accounting purposes) even though Liberty does not have any voting rights. Liberty has elected to apply the
fair value option for its investment in Liberty Broadband as it is believed that the Company’s investors value this investment
based on the trading price of Liberty Broadband.
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Regulatory Matters
Programming and Interactive Television Services
Although QVC, a wholly owned subsidiary, and HSN, a business affiliate, market and sell consumer products through a
variety of outlets, each does so, in large part, through live video programming services distributed by cable television
systems, satellite systems and over-the-air broadcasters. Consequently, regulation of programming services and the entities
that distribute them can affect QVC and HSN. In the U.S., the FCC regulates broadcasters, the providers of satellite
communications services and facilities for the transmission of programming services, the cable television systems and other
multichannel video programming distributors ("MVPDs") that distribute such services, and, to some extent, the availability
of the programming services themselves through its regulation of program licensing. Cable television systems in the U.S. are
also regulated by municipalities or other state and local government authorities. Regulatory carriage requirements also could
adversely affect the number of channels available to QVC and HSN.
Regulation of Program Licensing. The Cable Television Consumer Protection and Competition Act of 1992 (the “1992
Cable Act”) directed the FCC to promulgate regulations regarding the sale and acquisition of cable programming between
MVPDs (including cable operators) and satellite-delivered programming services in which a cable operator has an
attributable interest. The 1992 Cable Act and implementing regulations generally prohibit a cable operator that has an
attributable interest in a satellite programmer from improperly influencing the terms and conditions of sale to unaffiliated
MVPDs. Further, the 1992 Cable Act requires that such affiliated programmers make their programming services available to
cable operators and competing MVPDs such as multi-channel multi-point distribution systems and direct broadcast satellite
("DBS") distributors on terms and conditions that do not unfairly discriminate among distributors, and the FCC has
established complaint enforcement and damages remedy procedures. FCC rules attribute the ownership interest in Charter of
Liberty Broadband, and Liberty Global plc’s ownership interest in Liberty Cablevision of Puerto Rico, LLC to us, thereby
subjecting us and satellite-delivered programming services in which we have an interest to the program access rules. We are
also subject to the program access rules as a condition of FCC approval of Liberty’s transaction with News Corporation in
2008.
In 2014, the FCC released a notice of proposed rulemaking seeking comment on a proposal to revise the definition of
MVPD in its rules to include services, such as Internet-based services, that make available for purchase by viewers, multiple
linear streams of video programming, regardless of the technology used to distribute the programming. If the FCC were to
adopt its proposed definition and determine that the program access rules apply to such MVPDs, QVC and HSN potentially
would be required to negotiate with, and license their programming services to, such MVPDs and to comply with other
related regulatory requirements.
Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC has adopted regulations prohibiting cable
operators from requiring a financial interest in a programming service as a condition to carriage of such service, coercing
exclusive rights in a programming service or favoring affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete. The FCC has established program carriage complaint rules.
Regulation of Ownership. The 1992 Cable Act required the FCC, among other things, (1) to prescribe rules and
regulations establishing reasonable limits on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable interest and (2) to consider the necessity and
appropriateness of imposing limitations on the degree to which MVPDs (including cable operators) may engage in the
creation or production of video programming. Although the FCC adopted regulations limiting carriage by a cable operator,
the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated the channel occupancy limits
adopted by the FCC and remanded the rule to the FCC for further consideration in 2001. In response to the D.C. Circuit’s
decision, the FCC issued further notices of proposed rulemaking in 2001 and in 2005 to consider channel occupancy
limitations, but has not adopted any rules.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted broadcasters a choice of must carry rights or
retransmission consent rights. The rules adopted by the FCC generally provided for mandatory carriage by cable systems of
all local full-power commercial television broadcast signals selecting must carry rights and, depending on a cable system's
channel capacity, non-commercial television broadcast signals. Such statutorily mandated carriage of broadcast
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stations coupled with the provisions of the Cable Communications Policy Act of 1984, which require cable television
systems with 36 or more "activated" channels to reserve a percentage of such channels for commercial use by unaffiliated
third parties and permit franchise authorities to require the cable operator to provide channel capacity, equipment and
facilities for public, educational and government access channels, could adversely affect QVC and HSN by limiting the
carriage of such services in cable systems with limited channel capacity.
Closed Captioning Regulation. The Telecommunications Act of 1996 also required the FCC to establish rules and an
implementation schedule to ensure that video programming is fully accessible to the hearing impaired through closed
captioning. The rules adopted by the FCC require substantial closed captioning, with only limited exemptions. In 2012, the
FCC adopted regulations pursuant to the Twenty-First Century Communications and Video Accessibility Act of 2010 that
require, among other things, video programming owners to send caption files for IP delivered video programming to video
programming distributors and providers along with program files. In 2014, the FCC adopted closed captioning quality
standards regarding captioning accuracy, synchronicity, completeness and placement, and captioning best practices for
programmers. In 2016, the FCC amended its closed captioning regulations to assign captioning compliance responsibility to
programmers jointly with distributors, and to adopt certain registration, certification and complaint procedures applicable to
programmers. As a result of these captioning requirements, QVC and HSN may incur additional costs for closed captioning.
Internet Services
Our online commerce businesses are subject, both directly and indirectly, to various domestic and foreign laws and
governmental regulations. Certain of these businesses engaged in the provision of goods and services over the Internet must
comply with federal and state laws and regulations applicable to online communications and commerce. For example, the
Children's Online Privacy Protection Act ("COPPA") prohibits web sites from collecting personally identifiable information
online from children under age 13 without parental consent and imposes a number of operational requirements. The Federal
Trade Commission ("FTC") has adopted regulations implementing COPPA. Certain email activities are subject to the
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, commonly known as the CAN-SPAM
Act. The CAN-SPAM Act regulates the sending of unsolicited commercial email by requiring the email sender, among other
things, to comply with specific disclosure requirements and to provide an "opt-out" mechanism for recipients. Both of these
laws include statutory penalties for non-compliance. The Digital Millennium Copyright Act limits, but does not eliminate,
liability for listing or linking to third party websites that may include content that infringes on copyrights or other rights so
long as our Internet businesses comply with the statutory requirements. Various states also have adopted laws regulating
certain aspects of Internet communications. In 2016, Congress enacted a permanent moratorium on state and local taxes on
Internet access and commerce.
Our online commerce businesses also are subject to laws governing the collection, use, retention, security and transfer of
personally-identifiable information about their users. In particular, the collection and use of personal information by
companies has received increased regulatory scrutiny on a global basis. The enactment, interpretation and application of user
data protection laws are in a state of flux, and the interpretation and application of such laws may vary from country to
country. For example, in April 2016, the European Parliament and the Council of the European Union adopted the General
Data Protection Regulation which established new data laws that give customers additional rights and impose additional
restrictions and penalties on companies for illegal collection and misuse of personal information. The new data laws take
effect in May 2018. Further, on October 6, 2015, the Court of Justice of the European Union invalidated the “Safe Harbor
Framework,” which had allowed companies to collect and process personal data in European Union (“EU”) nations for use in
the U.S. In early 2016, European and U.S. authorities reached agreement on a new data transfer framework, the EU-U.S.
Privacy Shield, which became fully operational on August 1, 2016. Finally, on January 10, 2017, the European Commission
proposed new regulations regarding privacy and electronic communications, including additional regulation of the Internet
tracking tools known as “cookies.”
In the U.S., the FTC has proposed a privacy policy framework, and the new Congress may consider legislation that
would require organizations that suffer a breach of security related to personal information to notify owners of such
information. Many states have adopted laws requiring notification to users when there is a security breach affecting personal
data, such as California's Information Practices Act. Complying with these different national and state privacy requirements
may cause the Internet companies in which we have interests to incur substantial costs. In addition, such
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companies generally have and post on their websites privacy policies and practices regarding the collection, use and
disclosure of user data. A failure to comply with such posted privacy policies or with the regulatory requirements of federal,
state, or foreign privacy laws could result in proceedings or actions by governmental agencies or others (such as class action
litigation) which could adversely affect our online commerce businesses. Technical violations of certain privacy laws can
result in significant penalties, including statutory penalties. In 2012, the FCC amended its regulations under the Telephone
Consumer Protection Act ("TCPA"), which could subject our Internet businesses to increased liability for certain telephonic
communications with customers, including but not limited to text messages to mobile phones. Under the TCPA, plaintiffs
may seek actual monetary loss or statutory damages of $500 per violation, whichever is greater, and courts may treble such
damage awards for willful or knowing violations. Data collection, privacy and security are growing public concerns. If
consumers were to decrease their use of our Internet businesses' websites to purchase products and services, such businesses
could be harmed. Congress, individual states and foreign authorities may consider additional online privacy legislation.
Goods sold over the Internet also must comply with traditional regulatory requirements, such as the FTC requirements
regarding truthful and accurate claims. Other Internet-related laws and regulations enacted in the future may cover issues
such as defamatory speech, copyright infringement, pricing and characteristics and quality of products and services. The
future adoption of such laws or regulations may slow the growth of commercial online services and the Internet, which could
in turn cause a decline in the demand for the services and products of our online commerce businesses and increase their
costs of doing business or otherwise have an adverse effect on their businesses, operating results and financial conditions.
Moreover, the applicability to commercial online services and the Internet of existing laws governing issues such as property
ownership, libel, personal privacy and taxation is uncertain and could expose these companies to substantial liability.
In 2015, the FCC adopted open Internet rules that reclassify wireline and wireless broadband services as Title II common
carrier services and regulate broadband services offered by Internet service providers (“ISPs”) under Title II, Title III and
Section 706 of the Telecommunications Act of 1996. The regulations prohibit ISPs from: (1) blocking access to, or impairing
or degrading, legal content, applications, services or non-harmful devices; and (2) favoring selected Internet traffic in
exchange for consideration. The rules also allow the FCC to hear complaints and take enforcement action if it determines
that the interconnection agreements of ISPs are not just and reasonable, or if ISPs fail to meet a new general obligation not to
unreasonably interfere with or unreasonably disadvantage consumers or edge providers. The open Internet rules were upheld
by the United States Court of Appeals for the D.C. Circuit in June 2016, but remain subject to additional appeals. Congress
or the FCC may modify or repeal the existing regulations.
Proposed Changes in Regulation
The regulation of programming services, cable television systems, DBS providers, Internet services, online sales and
other forms of product marketing is subject to the political process and has been in constant flux over the past decade. Further
material changes in the law and regulatory requirements must be anticipated and there can be no assurance that our business
will not be adversely affected by future legislation, new regulation or deregulation.
Competition
Our businesses that engage in video and online commerce compete with traditional brick-and-mortar and online retailers
ranging from large department stores to specialty shops, electronic retailers, direct marketing retailers, such as mail order and
catalog companies, and discount retailers. Due to the nature of these businesses there is not a single or small group of
competitors that own a significant portion of the overall market share. However, some of these competitors, such as
Amazon, have a significantly greater web-presence than our e-commerce subsidiaries and equity affiliates. In addition, QVC
and HSN compete for access to customers and audience share with each other and with other conventional forms of
entertainment and content. We believe that the principal competitive factors in the markets in which our electronic
commerce businesses compete are high-quality products, brand recognition, selection, value, convenience, price, website
performance, customer service and accuracy of order shipment. Our businesses that offer services through the Internet
compete with businesses that offer their own services directly through the Internet as well as with traditional offline providers
of similar services. We believe that the principal competitive factors in the markets in which our businesses that
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offer services through the Internet engage are selection, price, availability of inventory, convenience, brand recognition,
accessibility, customer service, reliability, website performance, and ease of use.
Employees
As of December 31, 2016, our corporate function is supported by a services agreement with LMC which has
approximately 80 corporate employees who are also considered employees of Liberty. Additionally, our consolidated
subsidiaries had an aggregate of approximately 21,000 full and part-time employees. We believe that our employee relations
are good.
(d) Financial Information About Geographic Areas
For financial information related to the geographic areas in which we do business, see note 19 to our consolidated
financial statements found in Part II of this report.
(e) Available Information
All of our filings with the SEC, including our Form 10-Ks, Form 10-Qs and Form 8-Ks, as well as amendments to such
filings are available on our Internet website free of charge generally within 24 hours after we file such material with the
SEC. Our website address is www.libertyinteractive.com.
Our corporate governance guidelines, code of business conduct and ethics, compensation committee charter, nominating
and corporate governance committee charter, and audit committee charter are available on our website. In addition, we will
provide a copy of any of these documents, free of charge, to any shareholder who calls or submits a request in writing to
Investor Relations, Liberty Interactive Corporation, 12300 Liberty Boulevard, Englewood, Colorado 80112, Tel. No. (877)
772-1518.
The information contained on our website is not incorporated by reference herein.
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Item 1A. Risk Factors
The risks described below and elsewhere in this annual report are not the only ones that relate to our businesses or our
capitalization. The risks described below are considered to be the most material. However, there may be other unknown or
unpredictable economic, business, competitive, regulatory or other factors that also could have material adverse effects on
our businesses. Past financial performance may not be a reliable indicator of future performance and historical trends
should not be used to anticipate results or trends in future periods. If any of the events described below were to occur, our
businesses, prospects, financial condition, results of operations and/or cash flows could be materially adversely affected.
Risk Factors Related to our Company, the QVC Group and the Ventures Group
The risks described below apply to our company and to the businesses and assets attributable to the QVC Group and the
Ventures Group.
The historical financial information of the QVC Group and the Ventures Group included in this Annual Report,
may not necessarily reflect their results had they been separate companies. One of the reasons for the creation of a tracking
stock is to permit equity investors to apply more specific criteria in valuing the shares of a particular group, such as
comparisons of earnings multiples with those of other companies in the same business sector. In valuing shares of QVC
Group tracking stock and Ventures Group tracking stock, investors should recognize that the historical financial information
of the QVC Group and the Ventures Group has been extracted from our consolidated financial statements and may not
necessarily reflect what the QVC Group’s and the Ventures Group’s results of operations, financial condition and cash flows
would have been had the QVC Group and the Ventures Group been separate, stand-alone entities pursuing independent
strategies during the periods presented.
Our subsidiary QVC depends on the television distributors that carry its programming, and no assurance can be
given that QVC will be able to maintain and renew its affiliation agreements on favorable terms or at all. QVC currently
distributes its programming through affiliation or transmission agreements with many television providers, including, but not
limited to, Comcast, AT&T/DIRECTV, DISH Network, Verizon and Cox in the U.S., Vodafone Kabel Deutschland GmbH,
Media Broadcast GmbH, SES ASTRA, SES Platform Services GmbH, Telekom Deutschland GmbH, Unitymedia GmbH,
Tele Columbus and Primacom in Germany, Jupiter Telecommunications, Ltd., Sky Perfect and World Hi-Vision Channel, Inc.
in Japan, A1 Telekom Austria AG and UPC Telekabel Wien GmbH in Austria, British Sky Broadcasting, Freesat, Freeview
and Virgin Media in the U.K. and Mediaset, Hot Bird and Sky Italia in Italy. QVC’s affiliation agreements with its
distributors are scheduled to expire between 2017 and 2027. As part of normal course renewal discussions, occasionally
QVC has disagreements with its distributors over the terms of its carriage, such as channel placement or other contract terms.
If not resolved through business negotiation, such disagreements could result in litigation or termination of an existing
agreement. Termination of an existing agreement resulting in the loss of distribution of QVC’s programming to a material
portion of its television households may adversely affect its growth, net revenue and earnings. The renewal negotiation
process for affiliation agreements is typically lengthy. In some cases, renewals are not agreed upon prior to the expiration of a
given agreement while the programming continues to be carried by the relevant distributor without an effective agreement in
place. QVC does not have distribution agreements with some of the cable operators that carry its programming. In total, QVC
is currently providing programming without affiliation agreements to distributors representing approximately 10% of its U.S.
distribution, and short-term, rolling 90 day letters of extension, to distributors who represent approximately 27% of its U.S.
distribution. Some of QVC’s international programming may continue to be carried by distributors after the expiration dates
on its affiliation agreements with such distributors have passed. QVC may be unable to obtain renewals with its current
distributors on acceptable terms, if at all. QVC may also be unable to successfully negotiate affiliation agreements with new
or existing distributors to carry its programming. Although QVC considers its current levels of distribution without written
agreement to be ordinary course, the failure to successfully renew or negotiate new affiliation agreements covering a material
portion of television households could result in a discontinuation of carriage that may adversely affect its viewership, growth,
net revenue and earnings.
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Our programming and online commerce businesses depend on their relationships with third party suppliers and
vendors and any adverse changes in these relationships could adversely affect our results of operations and those
attributed to any of our groups. An important component of the success of our programming and online commerce
businesses is their ability to maintain their existing, as well as build new, relationships with a limited number of local and
foreign suppliers and vendors, among other parties. There can be no assurance that our subsidiaries and business affiliates
will be able to maintain their existing supplier or vendor arrangements on commercially reasonable terms or at all or, with
respect to goods sourced from foreign markets, if the supply costs will remain stable. In addition, our subsidiaries and
business affiliates cannot guarantee that goods produced and delivered by third parties will meet applicable quality standards,
which is impacted by a number of factors, some which are not within the control of these parties. Adverse changes in existing
relationships or the inability to enter into new arrangements with these parties on favorable terms, if at all, could cause a
failure to meet customer expectations and timely delivery of products, which could in turn have a significant adverse effect
on our results of operations and those attributed to our groups.
Our businesses attributed to each group are subject to risks of adverse government regulation. Our programming
businesses, such as QVC and HSN, market and provide a broad range of merchandise through television shopping programs
and proprietary websites. Similarly, our online commerce businesses, such as zulily and the e-commerce companies, market
and provide a broad range of merchandise and/or services through their proprietary websites. As a result, these businesses are
subject to a wide variety of statutes, rules, regulations, policies and procedures in various jurisdictions, including foreign
jurisdictions, which are subject to change at any time, including laws regarding consumer protection, data privacy and
security, the regulation of retailers generally, the license requirements for television retailers in foreign jurisdictions, the
importation, sale and promotion of merchandise and the operation of retail stores and warehouse facilities, as well as laws
and regulations applicable to the Internet and businesses engaged in online commerce, such as those regulating the sending of
unsolicited, commercial electronic mail and texts. The failure by our businesses to comply with these laws and regulations
could result in a revocation of required licenses, fines and/or proceedings by governmental agencies and/or consumers, which
could adversely affect our businesses, financial condition and results of operations. Moreover, unfavorable changes in the
laws, rules and regulations applicable to our businesses could decrease demand for our businesses’ products and services,
increase costs and/or subject our businesses to additional liabilities. Similarly, new disclosure and reporting requirements,
established under existing or new state, federal or foreign laws, such as regulatory rules regarding requirements to disclose
efforts to identify the origin and existence of certain “conflict minerals” or abusive labor practices in portions of QVC’s
supply chain, could increase the cost of doing business, adversely affecting our results of operations. In addition, certain of
these regulations may impact the marketing efforts of our businesses and their brands.
As mentioned above, the manner in which certain of our subsidiaries and business affiliates sell and promote
merchandise and related claims and representations made in connection with these efforts is regulated by federal, state and
local law, as well as the laws of the foreign countries in which they operate. Certain of our subsidiaries and business affiliates
may be exposed to potential liability from claims by purchasers or from regulators and law enforcement agencies, including,
but not limited to, claims for personal injury, wrongful death and damage to personal property relating to merchandise sold
and misrepresentation of merchandise features and benefits. In certain instances, these subsidiaries and business affiliates
have the right to seek indemnification for related liabilities from their respective vendors and may require such vendors to
carry minimum levels of product liability and errors and omissions insurance. These vendors, however, may be unable to
satisfy indemnification claims, obtain suitable coverage or maintain this coverage on acceptable terms, or insurance may
provide inadequate coverage or be unavailable with respect to a particular claim.
In addition, programming services, cable television systems, the Internet, telephony services and satellite service
providers are subject to varying degrees of regulation in the U.S. by the FCC and other entities and in foreign countries by
similar regulators. Such regulation and legislation are subject to the political process and have been in constant flux over the
past decade. The application of various sales and use tax provisions under state, local and foreign law to the products and
services of our subsidiaries and certain of our business affiliates sold via the Internet, television and telephone is subject to
interpretation by the applicable taxing authorities, and no assurance can be given that such authorities will not take a contrary
position to that taken by our subsidiaries and certain of our business affiliates, which could have a material adverse effect on
their businesses. In addition, there have been numerous attempts at the federal, state and local levels to impose additional
taxes on online commerce transactions. Moreover, most foreign countries in which our subsidiaries or
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business affiliates have, or may in the future make, an investment, regulate, in varying degrees, the distribution, content and
ownership of programming services and foreign investment in programming companies and the Internet.
In addition, certain of our businesses are subject to consent decrees issued by the FTC barring them from making
deceptive claims for specified weight-loss products and dietary supplements and prohibiting them from making certain
claims about specified weight-loss, dietary supplement and anti-cellulite products unless they have competent and reliable
scientific evidence to substantiate such claims. Violation of these consent decrees may result in the imposition of significant
civil penalties for non-compliance and related redress to consumers and/or the issuance of an injunction enjoining these
businesses from engaging in prohibited activities. Further material changes in the law and increased regulatory requirements
must be anticipated, and there can be no assurance that the businesses and assets attributed to each group will not become
subject to increased expenses or more stringent restrictions as a result of any future legislation, new regulation or
deregulation.
Weak economic conditions worldwide may reduce consumer demand for our businesses’ products and services. The
prolonged economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could
adversely affect demand for our businesses’ products and services since a substantial portion of our businesses’ revenue is
derived from discretionary spending by individuals, which typically falls during times of economic instability. Global
financial markets continue to experience disruptions, including increased volatility and diminished liquidity and credit
availability. If economic and financial market conditions in the U.S. or other key markets, including China, Japan and
Europe, remain uncertain, persist, or deteriorate further, customers of our subsidiaries and affiliates may respond by
suspending, delaying, or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending
could adversely affect revenue across each of our tracking stock groups. Accordingly, our ability to increase or maintain
revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline.
Such weak economic conditions may also inhibit the expansion of our subsidiaries and affiliates into new European and other
markets. We currently are unable to predict the extent of any of these potential adverse effects.
We may be subject to significant tax liabilities related to the CommerceHub Spin-Off or the Expedia Holdings Split-
Off. In connection with the CommerceHub Spin-Off, we received an opinion of counsel to the effect that, for U.S. federal
income tax purposes, the CommerceHub Spin-Off will qualify as a tax-free transaction to Liberty and to the holders of its
Liberty Ventures common stock under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”), except
with respect to the receipt of cash in lieu of fractional shares. We also received an opinion of counsel in connection with the
Expedia Holdings Split-Off to the effect that the Expedia Holdings Split-Off will qualify as a tax-free transaction to Liberty
and to the holders of its Liberty Ventures common stock under Section 355, Section 368(a)(1)(D) and related provisions of
the Code, except with respect to the receipt of cash in lieu of fractional shares. In September 2016, the IRS completed its
review of the CommerceHub Spin-Off and informed Liberty that it agreed with the nontaxable characterization of the
transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion. In February 2017,
the IRS completed its review of the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable
characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this
conclusion.
Prior to the CommerceHub Spin-Off, we entered into a tax sharing agreement with CommerceHub. Under this
agreement with CommerceHub, our company is generally responsible for any taxes and losses resulting from the failure of
the CommerceHub Spin-Off to qualify as a tax-free transaction; however, CommerceHub is required to indemnify our
company for any taxes and losses which (i) result primarily from, individually or in the aggregate, the breach of certain
covenants made by CommerceHub (applicable to actions or failures to act by CommerceHub and its subsidiaries following
the completion of the CommerceHub Spin-Off), or (ii) result from the application of Section 355(e) of the Code to the
CommerceHub Spin-Off as a result of the treatment of the CommerceHub Spin-Off as part of a plan (or series of related
transactions) pursuant to which one or more persons acquire, directly or indirectly, a 50-percent or greater interest (measured
by either vote or value) in the stock of CommerceHub or any successor corporation. As the taxpaying entity, however, we are
subject to the risk of non-payment by CommerceHub of its indemnification obligations under the tax sharing agreement.
Similarly, prior to the Expedia Holdings Split-Off, we entered into a tax sharing agreement with Expedia
Holdings. Under this agreement with Expedia Holdings, our company is generally responsible for any taxes and losses
resulting from
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the failure of the Expedia Holdings Split-Off to qualify as a tax-free transaction; however, Expedia Holdings is required to
indemnify our company for any taxes and losses which (i) result primarily from, individually or in the aggregate, the breach
of certain covenants made by Expedia Holdings (applicable to actions or failures to act by Expedia Holdings and its
subsidiaries following the completion of the Expedia Holdings Split-Off), or (ii) result from the application of Section 355(e)
of the Code to the Expedia Holdings Split-Off as a result of the treatment of the Expedia Holdings Split-Off as part of a plan
(or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, a 50-percent or greater
interest (measured by either vote or value) in the stock of Expedia Holdings or any successor corporation. As the taxpaying
entity, however, we are subject to the risk of non-payment by Expedia Holdings of its indemnification obligations under the
tax sharing agreement.
To preserve the tax-free treatment of the CommerceHub Spin-Off and the Expedia Holdings Split-Off, we may
determine to forego certain transactions that might have otherwise been advantageous to our company, including certain asset
dispositions or other strategic transactions for some period of time following each of the CommerceHub Spin-Off and the
Expedia Holdings Split-Off. In addition, our potential tax liabilities related to the CommerceHub Spin-Off and the Expedia
Holdings Split-Off might discourage, delay or prevent a change of control transaction for some period of time following each
of the CommerceHub Spin-Off and the Expedia Holdings Split-Off.
Rapid technological advances could render the products and services offered by our subsidiaries and our business
affiliates attributed to our QVC Group and our Ventures Group obsolete or non-competitive. Our subsidiaries and business
affiliates attributed to each group must stay abreast of rapidly evolving technological developments and offerings to remain
competitive and increase the utility of their services. As their operations grow in size and scope, our subsidiaries and business
affiliates must continuously improve and upgrade their systems and infrastructure while maintaining or improving the
reliability and integrity of their systems and infrastructure. These subsidiaries and business affiliates must be able to
incorporate new technologies into their products and services in order to address the needs of their customers. The emergence
of alternative platforms such as mobile and tablet computing devices and the emergence of niche competitors who may be
able to optimize products, services or strategies for such platforms will require new investment in technology. New
developments in other areas, such as cloud computing, could also make it easier for competition to enter their markets due to
lower up-front technology costs. There can be no assurance that our subsidiaries and business affiliates will be able to
compete with advancing technology or be able to maintain existing systems or replace or introduce new technologies and
systems as quickly as they would like or in a cost-effective manner, and any failure to do so could result in customers seeking
alternative service providers and may adversely affect the group to which they are attributed, thereby adversely impacting our
revenue and operating income.
Our subsidiaries and business affiliates attributed to each of our QVC and Ventures Groups conduct their businesses
under highly competitive conditions. Although QVC and HSN are two of the nation’s largest home shopping networks, they
and their e-commerce businesses have numerous and varied competitors at the national and local levels, ranging from large
department stores to specialty shops, electronic retailers, direct marketing retailers, wholesale clubs, discount retailers,
infomercial retailers, Internet retailers, and mail-order and catalog companies. In addition, QVC competes with HSN as well
as other televised shopping retailers, such as EVINE Live in the U.S., Shop Channel in Japan, HSE 24 in Germany and Italy,
Ideal World in the U.K., and M6 Boutique in France, infomercial retailers, Internet retailers, and mail-order and catalog
companies. QVC also competes for access to customers and audience share with other providers of televised, online and
hard copy entertainment and content. Similarly, zulily competes with e-commerce businesses such as Amazon.com, Inc. and
Alibaba Group, the e-commerce platforms of traditional retailers such as Target Corporation, Toys”R”Us, Inc. and Wal-Mart
Stores, Inc., and online marketplaces such as eBay Inc. zulily expects increased competition with companies employing a
flash sales model as there are no significant barriers to entry. Competition is characterized by many factors, including
assortment, advertising, price, quality, service, accessibility, site functionality, reputation and credit availability, as well as the
financial, technical and marketing expertise of competitors. For example, many of our businesses’ competitors have greater
resources, longer histories, more customers and greater brand recognition than our businesses do, and competitors may secure
better terms from vendors, adopt more aggressive pricing, offer free or subsidized shipping and devote more resources to
technology, fulfillment and marketing. In addition, many retailers, especially online retailers with whom our subsidiaries and
business affiliates compete, are increasingly offering customers aggressive shipping terms, including free or discounted
expedited shipping. As these practices become more prevalent, our subsidiaries and business affiliates may experience
further competitive pressures to attract customers and/or to change their shipping programs. Other companies also may enter
into business combinations or alliances that
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strengthen their competitive positions. If our subsidiaries and business affiliates do not compete effectively with regard to
these factors, our results of operations could be materially and adversely affected.
The sales and operating results of the businesses attributed to each of our QVC Group and Ventures Group depend
on their ability to attract new customers, retain existing customers and predict or respond to consumer preferences. In
an effort to attract and retain customers, these businesses engage in various merchandising and marketing initiatives, which
involve the expenditure of money and resources. These initiatives, however, may not resonate with existing customers or
consumers generally or may not be cost-effective. In addition, costs associated with the production and distribution of
television programming (in the case of QVC and HSN) and costs associated with online marketing, including search engine
marketing (primarily the purchase of relevant keywords) have increased and are likely to continue to increase in the
foreseeable future and, if significant, could have a material adverse effect to the extent that they do not result in
corresponding increases in net revenue. These companies also continuously develop new retail concepts and adjust their
product mix in an effort to satisfy customer demands. Any sustained failure to identify and respond to emerging trends in
lifestyle and consumer preferences could have a material adverse effect on the businesses of these subsidiaries and business
affiliates. Consumer spending may be affected by many factors outside of their control, including competition from store-
based retailers, mail-order and third-party Internet companies, consumer confidence and preferences, and general economic
conditions.
The failure of our subsidiary QVC and our business affiliate HSN to maintain suitable placement for their
respective programming could adversely affect their ability to attract and retain television viewers and could result in a
decrease in revenue. QVC and HSN are dependent upon the continued ability of their programming to compete for
viewers. Effectively competing for television viewers is dependent, in substantial part, on their ability to negotiate and
maintain placement of their programming at a favorable channel position, such as in a basic tier or within a general
entertainment or general broadcasting tier. The advent of digital compression technologies and the adoption of digital cable
have resulted in increased channel capacity, which together with other changing laws, rules and regulations regarding cable
television ownership, impacts the ability of both QVC and HSN to negotiate and maintain suitable channel placement with
their respective distributors. Increased channel capacity could adversely affect the ability to attract television viewers to
QVC’s or HSN’s programming to the extent it results in a less favorable channel position for their respective programming,
such as placement adjacent to programming that does not complement their respective programming, a position next to their
respective televised home shopping competitors or isolation in a "shopping" tier, more competitors entering the marketplace,
or more programming options being available to the viewing public in the form of new television networks and timeshifted
viewing (e.g., personal video recorders, video-on-demand, interactive television and streaming video over Internet
connections). In addition, if QVC’s or HSN’s programming is carried exclusively by a distributor on a digital programming
tier, QVC or HSN may experience a reduction in revenue to the extent that the digital programming tier has less television
viewer penetration than the basic or expanded basic programming tier. QVC and HSN may experience a further reduction in
revenue due to increased television viewing audience fragmentation to the extent that not all television sets within a digital
cable home are equipped to receive television programming in a digital format. The future success of each of QVC and HSN
will depend, in part, on their ability to anticipate and adapt to technological changes and to offer elements of their respective
programming via new technologies in a cost-effective manner that meets customer demands and evolving industry standards.
Any continued or permanent inability of QVC or HSN to transmit their programming via satellite would result in
lost revenue and could result in lost customers. The success of our subsidiary QVC and our business affiliate HSN is
dependent upon their continued ability to transmit their respective programming to television providers from their respective
satellite uplink facilities, which transmissions are subject to FCC compliance in the U.S. and foreign regulatory requirements
in QVC’s and HSN’s international operations. In most cases, each of QVC and HSN has entered into long-term satellite
transponder leases to provide for continued carriage of its programming on replacement transponders and/or replacement
satellites, as applicable, in the event of a failure of either the transponders and/or satellites currently carrying its
programming. Although QVC believes that it takes reasonable and customary measures to ensure continued satellite
transmission capability and believes that these international transponder service agreements can be renewed (or replaced, if
necessary) in the ordinary course of business, termination or interruption of satellite transmissions may occur, particularly if
QVC is not able to successfully negotiate renewals or replacements of any of its expiring transponder service agreements in
the future.
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System interruption and the lack of integration and redundancy in the systems and infrastructures of our subsidiary
QVC, our business affiliate HSN and our other online commerce businesses may adversely affect their ability to, as
applicable, operate their businesses, transmit their television programs, operate websites, process and fulfill transactions,
respond to customer inquiries and generally maintain cost-efficient operations. The success of our subsidiaries and
business affiliates depends, in part, on their ability to maintain the integrity of their transmissions, systems and
infrastructures, including the transmission of television programs (in the case of QVC and HSN), as well as their websites,
information and related systems, call centers and fulfillment facilities. These subsidiaries and business affiliates may
experience occasional system interruptions that make some or all transmissions, systems or data unavailable or prevent them
from transmitting their signals or efficiently providing services or fulfilling orders, as the case may be. QVC is in the process
of implementing new technology systems and upgrading others. The failure to properly implement new systems or delays in
implementing new systems could impair the ability of our subsidiaries and business affiliates to provide services and content,
fulfill orders and/or process transactions. QVC and HSN also rely on affiliate and third-party computer systems, broadband,
transmission and other communications systems and service providers in connection with the transmission of their respective
signals, as well as to facilitate, process and fulfill transactions. Any interruptions, outages or delays in their signal
transmissions, systems and infrastructures, or any deterioration in the performance of these transmissions, systems and
infrastructures, could impair their ability to provide services, fulfill orders and/or process transactions. Fire, flood, power
loss, telecommunications failure, hurricanes, tornadoes, earthquakes, acts of war or terrorism, acts of God and similar events
or disruptions may damage or interrupt television transmissions, computer, broadband or other communications systems and
infrastructures at any time. Any of these events could cause transmission or system interruption, delays and loss of critical
data, and could prevent our subsidiaries and business affiliates from providing services, fulfilling orders and/or processing
transactions. While our subsidiaries and business affiliates have backup systems for certain aspects of their operations, these
systems are not fully redundant and disaster recovery planning is not sufficient for all possible risks. In addition, some of our
subsidiaries and business affiliates may not have adequate insurance coverage to compensate for losses from a major
interruption.
The processing, storage, sharing, use, disclosure and protection of personal data could give rise to liabilities as a
result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights. In the
processing of consumer transactions and managing their employees, our businesses receive, transmit and store a large volume
of personally identifiable information and other user data. The processing, storage, sharing, use, disclosure and protection of
this information are governed by the privacy and data security policies maintained by these businesses. Moreover, there are
federal, state and international laws regarding privacy and the processing, storage, sharing, use, disclosure and protection of
personally identifiable information and user data. Specifically, personally identifiable information is increasingly subject to
legislation and regulations, including changes in legislation and regulations, in numerous jurisdictions around the world, the
intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the
governing jurisdiction. Compliance with these laws and regulations, or changes in these laws and regulations, may be
onerous and expensive and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of
compliance. For example, the European Court of Justice in October 2015 issued a ruling immediately invalidating the U.S.-
EU Safe Harbor Framework, which facilitated personal data transfers to the U.S. in compliance with applicable European
data protection laws. Following this invalidation, the U.S. and European Union ("EU") authorities approved a new data
transfer structure, the Privacy Shield, to replace the U.S.-EU Safe Harbor Framework, but the Privacy Shield is now the
subject of litigation similar to the litigation that resulted in the invalidation of the U.S.-EU Safe Harbor Framework. In
addition, Standard Contractual Clauses - another key mechanism to allow data transfers between the U.S. and the EU - are
also subject to litigation over whether Standard Contractual Clauses can be used for transferring personal data from the EU to
the U.S. Further, the European Parliament and the Council of the European Union have approved a General Data Protection
Regulation, which enters into application on May 25, 2018 and which will give consumers additional rights and impose
additional restrictions and penalties on companies for illegal collection and misuse of personal information. Finally, on
January 10, 2017, the European Commission proposed new regulations regarding privacy and electronic communications,
including additional regulation of the Internet tracking tools known as “cookies.” QVC’s failure, and/or the failure by the
various third party vendors and service providers with which QVC does business, to comply with applicable privacy policies
or federal, state or similar international laws and regulations, or changes in applicable laws and regulations, or any
compromise of security that results in the unauthorized release of personally identifiable information or other user data could
damage QVC’s reputation and the reputation of its third party vendors and service providers, discourage potential users from
trying its products and services and/or result in fines and/or proceedings by governmental agencies and/or consumers, any
one or all of which could adversely affect
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QVC’s business, financial condition and results of operations of these businesses and, as a result, our company. In addition,
we, our subsidiaries or our business affiliates may not have adequate insurance coverage to compensate for losses.
Our home television and online commerce businesses are subject to security risks, including security breaches and
identity theft. In order to succeed, our home television and online commerce businesses must be able to provide for secure
transmission of confidential information over public networks. Any penetration of network security or other misappropriation
or misuse of personal information could cause interruptions in the operations of their business and subject them to increased
costs, litigation and other liabilities. Security breaches could also significantly damage their reputation with their customers
and third parties with whom they do business. These businesses may be required to expend significant capital and other
resources to protect against and remedy any potential or existing security breaches and their consequences. They also face
risks associated with security breaches affecting third parties with which they are affiliated or otherwise conduct business
online. The loss of confidence in our online commerce businesses resulting from any such security breaches or identity theft
could adversely affect the business, financial condition and results of operations of our online commerce businesses and, as a
result, our company.
Certain of our subsidiaries and business affiliates may fail to adequately protect their intellectual property rights or
may be accused of infringing intellectual property rights of third parties. Our subsidiaries and business affiliates regard
their respective intellectual property rights, including service marks, trademarks and domain names, copyrights (including
their programming and their websites), trade secrets and similar intellectual property, as critical to their success. These
businesses also rely heavily upon software codes, informational databases and other components that make up their products
and services. From time to time, these businesses are subject to legal proceedings and claims in the ordinary course of
business, including claims of alleged infringement of the trademarks, patents, copyrights and other intellectual property rights
of third parties. In addition, litigation may be necessary to enforce the intellectual property rights of these businesses, protect
trade secrets or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature,
regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of
which could adversely affect the business, financial condition and results of operations of these businesses and in turn our
financial condition and results of operations. The failure of these businesses to protect their intellectual property rights,
particularly their proprietary brands, in a meaningful manner or third party challenges to related contractual rights could
result in erosion of brand names and limit the ability of these businesses to control marketing on or through the Internet using
their various domain names, which could adversely affect the business, financial condition and results of operations of these
businesses, as well as the financial condition and results of operations of our company.
Our home television and online commerce businesses rely on independent shipping companies to deliver the
products they sell. Our home television and online commerce businesses rely on third party carriers to deliver merchandise
from vendors and manufacturers to them and to ship merchandise to their customers. As a result, they are subject to carrier
disruptions and delays due to factors that are beyond their control, including employee strikes, inclement weather and
regulation and enforcement actions by customs agencies. Any failure to deliver products to their customers in a timely and
accurate manner may damage their reputation and brand and could cause them to lose customers. Enforcement actions by
customs agencies can also cause the costs of imported goods to increase, negatively affecting profits. These businesses are
also impacted by increases in shipping rates charged by third party carriers, which over the past few years have increased
significantly in comparison to historical levels, and it is currently expected that shipping and postal rates will continue to
increase. In the case of deliveries to customers, in each market where they operate, they have negotiated agreements with
one or more independent, third party shipping companies, which in certain circumstances provide for favorable shipping
rates. If any of these relationships were to terminate or if a shipping company was unable to fulfill its obligations under its
contract for any reason, these businesses would have to work with other shipping companies to deliver merchandise to
customers, which would most likely be at less favorable rates. Other potential adverse consequences of changing carriers
include reduced visibility of order status and package tracking, delays in order processing and product delivery, and reduced
shipment quality, which may result in damaged products and customer dissatisfaction. Any increase in shipping rates and
related fuel and other surcharges passed on to these businesses by their current carriers or any other shipping company would
adversely impact profits, given that these businesses may not be able to pass these increased costs directly to customers or
offset them by increasing prices without a detrimental effect on customer demand.
zulily generally does not hold inventory until products have been ordered by customers, which results in slower
delivery time than other e-commerce retailers. zulily generally does not order inventory from its vendors to be held in
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its fulfillment centers until after the products have been ordered by its customers. As a result, the time from when an order is
placed on zulily’s sites to when the product is delivered to its customers is longer than for many other e-commerce retailers
who generally carry significant inventory that enables them to expedite delivery. In an effort to reduce delivery times without
carrying additional inventory, zulily has expanded consignment and fulfillment services for its vendors. zulily may not
achieve its anticipated improvement in delivery times if it is unable to effectively deploy these services or engage a sufficient
number of vendors to adopt these services. Modification of zulily’s inventory planning and consolidation processes may also
result in inconsistent or slower delivery times. Utilization of zulily’s infrastructure for vendor fulfillment services could also
negatively impact delivery times. zulily’s relatively slower delivery times may place it at a competitive disadvantage to other
e-commerce retailers and may cause customers to stop purchasing from zulily. If it is required to decrease its delivery times
to address this competition or to meet customer demands, zulily may be required to incur additional shipping costs, which it
may or may not be able to pass on to its customers, or to change its operations to carry additional inventory and face
additional inventory risk, either of which could adversely affect the business, financial condition and operating results of
zulily and, as a result, our company.
The seasonality of certain of our businesses places increased strain on their operations. The net revenue of our home
television and online commerce businesses in recent years indicates that these businesses are seasonal due to a higher volume
of sales in certain months or calendar quarters or related to particular holiday shopping. For example, in recent years, QVC
has earned, on average, between 22% and 24% of its global revenue in each of the first three quarters of the year and between
30% and 32% of its global revenue in the fourth quarter of the year. Similarly, our subsidiary zulily experiences a stronger
third quarter during the back-to-school shopping season and stronger fourth quarter due to the holiday shopping season. If the
vendors for these businesses are not able to provide popular products in sufficient amounts such that these businesses fail to
meet customer demand, it could significantly affect their revenue and future growth. If too many customers access the
websites of these businesses within a short period of time due to increased demand, our businesses may experience system
interruptions that make their websites unavailable or prevent them from efficiently fulfilling orders, which may reduce the
volume of goods they sell and the attractiveness of their products and services. In addition, they may be unable to adequately
staff their fulfillment and customer service centers during these peak periods and delivery and other third party shipping (or
carrier) companies may be unable to meet the seasonal demand. To the extent these businesses pay for holiday merchandise
in advance of certain holidays (e.g., in the case of QVC, in August through November of each year), their available cash may
decrease, resulting in less liquidity.
The failure of our subsidiary QVC to effectively manage its Easy-Pay and revolving credit card programs could
result in less income. QVC offers Easy-Pay in the U.S., U.K., Germany and Italy (known as Q-Pay in Germany and Italy), a
payment plan that, when offered by QVC, allows customers to pay for certain merchandise in two or more monthly
installments. When Easy-Pay is offered by QVC and elected by the customer, the first installment is typically billed to the
customer’s credit card upon shipment. Generally, the customer’s credit card is subsequently billed up to five additional
monthly installments until the total purchase price of the products has been billed by QVC. QVC cannot predict whether
customers will pay all of their Easy-Pay installments. In addition, QVC-U.S. has an agreement with a large consumer
financial institution (the “Bank”) pursuant to which the Bank provides revolving credit directly to QVC’s customers for the
sole purpose of purchasing merchandise from QVC with a QVC branded credit card (“Q Card”). QVC receives a portion of
the net economics of the credit card program according to percentages that vary with the performance of the portfolio. We
cannot predict the extent to which QVC’s customers will use the Q Card, nor the extent that they will make payments on their
outstanding balances.
The success of our home television and online commerce businesses depends in large part on their ability to recruit
and retain key personnel capable of executing their unique business models. QVC and HSN, as well as our e-commerce
subsidiaries and business affiliates have business models that require them to recruit and retain key employees, including
management, with the skills necessary for a unique business that demands knowledge of the general retail industry, television
production, direct to consumer marketing and fulfillment and the Internet. We cannot assure you that if QVC, HSN or our
online commerce businesses experience turnover of these key employees they will be able to recruit and retain acceptable
replacements because the market for such employees is very competitive and limited.
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Certain of our subsidiaries and business affiliates have operations outside of the United States that are subject to
numerous operational and financial risks. Certain of our subsidiaries and business affiliates have operations in countries
other than the United States that are subject to the following risks inherent in international operations:
fluctuations in currency exchange rates;
·
· longer payment cycles for sales in foreign countries that may increase the uncertainty associated with recoverable
accounts;
· recessionary conditions and economic instability, including fiscal policies that are implementing austerity measures in
certain countries, which are affecting overseas markets;
· limited ability to repatriate funds to the U.S. at favorable tax rates;
· potentially adverse tax consequences;
· export and import restrictions, changes in tariffs, and trade relations
· increases in taxes and governmental royalties and fees;
· the ability to obtain and maintain required licenses that enable us to operate our businesses in foreign jurisdictions;
· changes in foreign and U.S. laws, regulations and policies that govern operations of foreign-based companies;
· changes to general consumer protection laws and regulations;
· difficulties in staffing and managing international operations; and
· threatened and actual terrorist attacks, political unrest in international markets and ongoing military action around the
world that may result in disruptions of service that are critical to QVC’s international businesses.
Moreover, in many foreign countries, particularly in certain developing economies, it is not uncommon to encounter
business practices that are prohibited by certain regulations, such as the Foreign Corrupt Practices Act and similar laws.
Although certain of our subsidiaries and business affiliates have undertaken compliance efforts with respect to these laws,
their respective employees, contractors and agents, as well as those companies to which they outsource certain of their
business operations, may take actions in violation of their policies and procedures. Any such violation, even if prohibited by
the policies and procedures of these subsidiaries and business affiliates or the law, could have certain adverse effects on the
financial condition of these subsidiaries and business affiliates. Any failure by these subsidiaries and business affiliates to
effectively manage the challenges associated with the international operation of their businesses could materially adversely
affect their, and hence our, financial condition.
Significant developments stemming from the 2016 U.S. presidential election or the Brexit vote could have a material
adverse effect on businesses attributed to the QVC and Ventures Groups. After the presidential inauguration on January 20,
2017, President Donald J. Trump and his administration took office in the United States. As a presidential candidate,
President Trump expressed apprehension towards existing trade agreements, such as the North American Free Trade
Agreement and the Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or withdraw from these
agreements. During the campaign, he also raised the possibility of significantly increasing tariffs on goods imported into the
United States, particularly from China and Mexico, which if implemented, could adversely affect businesses attributed to the
QVC and Ventures Groups that sell imported products. Other changes supported by the Trump administration include
significant U.S. tax reform of long-standing tax principles in the U.S. which could also adversely affect our operating results
and our business.
Additionally, the results from the recent Brexit vote have created political and economic uncertainty, particularly in the
U.K. and the EU, and this uncertainty may last for years. QVC’s business could be affected during this period of uncertainty,
and perhaps longer, by the impact of this vote. In addition, QVC’s business could be negatively affected by new trade
agreements between the U.K. and other countries, including the U.S., and by the possible imposition of trade or other
regulatory barriers in the U.K. These possible negative impacts, and others resulting from the U.K.’s actual withdrawal from
the EU, may adversely affect QVC’s operating results.
Our online commerce businesses, including QVC, zulily and HSN could be negatively affected by changes in search
engine algorithms and dynamics or search engine disintermediation as well as their inability to monetize the resulting web
traffic. The success of our online commerce businesses depends on a high degree of website traffic, which is dependent on
many factors, including the availability of appealing website content, user loyalty and new user generation from search
portals that charge a fee (such as Google). In obtaining a significant amount of website traffic via search engines, they utilize
techniques such as search engine optimization (“SEO”) which is the practice of developing websites
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with relevant and current content that rank well in “organic,” or unpaid, search engine results) and search engine marketing
(“SEM”) (which is a form of Internet marketing that involves the promotion of websites by increasing their visibility
in search engine results pages through the use of paid placement, contextual advertising, and paid inclusion) to improve their
placement in relevant search queries. Search engines, including Google, frequently update and change the logic that
determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links
to the websites of our online commerce businesses can be negatively affected. Moreover, a search engine could, for
competitive or other purposes, alter its search algorithms or results causing their websites to place lower in search query
results. If a major search engine changes its algorithms in a manner that negatively affects their paid or unpaid search
ranking, or if competitive dynamics impact the effectiveness of SEO or SEM in a negative manner, the business and financial
performance of our online commerce businesses would be adversely affected, potentially to a material extent. Furthermore,
the failure of our online commerce businesses to successfully manage their SEO and SEM strategies could result in a
substantial decrease in traffic to their websites, as well as increased costs if they were to replace free traffic with paid
traffic. Even if our online commerce businesses are successful in generating a high level of website traffic, no assurance can
be given that our online commerce businesses will be successful in achieving repeat user loyalty or that new visitors will
explore the offerings on their sites. Monetizing this traffic by converting users to consumers is dependent on many factors,
including availability of inventory, consumer preferences, price, ease of use and website quality. No assurance can be given
that the fees paid to search portals will not exceed the revenue generated by their visitors. Any failure to sustain user traffic
or to monetize such traffic could materially adversely affect the financial performance of our online commerce businesses
and, as a result, adversely affect our financial results.
Our online commerce businesses, including QVC, zulily and HSN, may experience difficulty in achieving the
successful development, implementation and customer acceptance of, and a viable advertising market via, applications for
smartphone and tablet computing devices, which could harm their business. Although our online commerce businesses
have developed services and applications to address user and consumer interaction with website content on smartphone and
other non-traditional desktop or laptop computer systems (which typically have smaller screens and less convenient typing
capabilities), the efficacy of the smartphone application and its advertising market is still developing. Moreover, if
smartphone computing services prove to be less effective for the users of our online commerce businesses or less
economically attractive for advertisers and the smartphone segment of Internet traffic grows at the expense of traditional
computer and tablet Internet access, our online commerce businesses may experience difficulty attracting and retaining traffic
and, in turn, advertisers, on these platforms. Additionally, as new devices and new platforms are continually being released, it
is difficult to predict the challenges that may be encountered in developing versions of our online commerce businesses’
offerings for use on these alternative devices, and our online commerce businesses may need to devote significant resources
to the creation, support, and maintenance of their services on such devices. To the extent that revenue generated from
advertising placed on smartphone computing devices becomes increasingly more important to their businesses and they fail
to adequately evolve and address this market, their business and financial performance could be negatively impacted. In
addition, growth in the use of smartphone products as a substitute for use on personal computers and tablets may adversely
impact revenue derived from advertising, as many of the processes used for smartphone advertising and related monetization
strategies are still in development.
Our subsidiary QVC has significant indebtedness, which could limit its flexibility to respond to current market
conditions, restrict its business activities and adversely affect its financial condition. As of December 31, 2016, QVC had
total debt of approximately $5,320 million, consisting of $3,550 million in senior secured notes, $1,596 million under its
senior secured credit facility and $174 million of capital and build to suit lease obligations. QVC also had $744 million
available for borrowing under its senior secured credit facility as of that date. QVC may incur significant additional
indebtedness in the future. The indebtedness of QVC, combined with other financial obligations and contractual
commitments, could among other things:
· increase QVC’s vulnerability to general adverse economic and industry conditions;
· require a substantial portion of QVC’s cash flow from operations to be dedicated to the payment of principal and
interest on its indebtedness;
· limit QVC’s ability to use cash flow or obtain additional financing for future working capital, capital expenditures or
other general corporate purposes, which reduces the funds available to it for operations and any future business
opportunities;
· limit flexibility in planning for, or reacting to, changes in its business and the markets in which it operates;
· competitively disadvantage QVC compared with competitors that have less debt;
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· limit QVC’s ability to borrow additional funds or to borrow funds at rates or on other terms that it finds acceptable;
and
· expose QVC to the risk of increased interest rates because certain of QVC’s borrowings, including borrowings under
its credit facility, are at variable interest rates.
In addition, it is possible that QVC may need to incur additional indebtedness in the future in the ordinary course of business.
If new debt is added to its current debt levels, the risks described above could intensify. If QVC experiences adverse effects
on its financial condition as a result of its indebtedness, our financial performance could be adversely affected as well.
We may fail to realize the potential benefits of the acquisition of zulily or those benefits may take longer to realize
than expected. We believe there are significant benefits and synergies that may be realized through leveraging the scale,
vendor relationships, merchandizing expertise and customer base of QVC and zulily. However, the efforts to realize these
benefits and synergies will be a complex process and may disrupt both companies’ existing operations if not implemented in
a timely and efficient manner. If the respective managements of Liberty, QVC and zulily are unable to minimize the potential
disruption to their respective businesses and operations during this period, we may not realize the anticipated benefits of the
acquisition of zulily. Realizing these benefits may depend in part on the efficient coordination and alignment of various
functions, including marketing, merchandising, buying expertise, customer acquisition and the integration of certain
administrative functions, while maintaining adequate focus on QVC’s and zulily’s core businesses.
The operating expenses attributed to the QVC Group are expected to increase over the near term due to the increased
headcount, expanded operations and changes related to the assimilation of zulily. In addition, we have incurred expenses
related to the acquisition of zulily that have been attributed to the QVC Group, which may adversely affect our financial
results. To the extent that our expenses increase but revenue does not increase commensurately, there are unanticipated
expenses related to the assimilation process, there are significant costs associated with presently unknown liabilities, or if the
foregoing charges and expenses are larger than anticipated, our consolidated business, operating results and financial
condition, as well as those attributable to the QVC Group, may be adversely affected. Failure to timely implement, or
problems with implementing, the post-acquisition strategy for zulily also may adversely affect the trading price of QVC
Group common stock.
We depend on the continued growth of e-commerce in general and zulily depends on the flash sales model in
particular. The business of selling products over the Internet, particularly on the flash sales model, is dynamic and evolving.
The market segment for the flash sales model has grown significantly, and this growth may not be sustainable. If customers
cease to find the flash sales model shopping experience fun, entertaining and a good value, or otherwise lose interest in
shopping in this manner, zulily may not acquire new customers at rates consistent with its historical or projected periods, and
existing customers’ buying patterns and levels may be less than historical or projected rates. If zulily is unable to successfully
deliver emails or mobile alerts to its subscribers, or if subscribers decline to open its emails or mobile alerts, zulily’s net sales
and profitability would be adversely affected. In addition, changes in how webmail application providers, such as Google Inc.
and Yahoo! Inc., prioritize, filter and deliver email may also reduce the number of subscribers opening zulily’s emails which
may also result in a decline in net sales. If the market segment for the flash sales model were to become saturated or decline
overall, zulily may not be able to acquire new customers or engage existing customers, which could adversely affect the QVC
Group’s financial condition and operating results.
We do not have the right to manage our business affiliates attributed to either our QVC Group or our Ventures
Group, which means we are not able to cause those affiliates to act in a manner that we deem desirable. We do not have
the right to manage the businesses or affairs of any of our business affiliates (generally those companies in which we have
less than a majority voting stake or with respect to which we have provided a proxy over our voting power to a third party)
including HSN, which is attributed to our QVC Group. Rather, our rights may take the form of representation on the board of
directors or similar committee that supervises management or possession of veto rights over significant or extraordinary
actions. The scope of our veto rights varies from agreement to agreement. Although our board representation and veto rights
may enable us to exercise influence over the management or policies of a business affiliate, enable us to prevent the sale of
material assets by a business affiliate in which we own less than a majority voting interest or prevent us from paying
dividends or making distributions to our stockholders or partners, they will not enable us to cause these actions to be taken as
these companies are business affiliates in which we own a partial interest.
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We have overlapping directors and management with LMC, TripAdvisor Holdings, Liberty Broadband and Expedia
Holdings, which may lead to conflicting interests. As a result of the LMC Split-Off, the TripAdvisor Holdings Spin-Off,
LMC's spin-off of Liberty Broadband in November 2014 and the Expedia Holdings Split-Off in November 2016, most of the
executive officers of Liberty also serve as executive officers of LMC, TripAdvisor Holdings, Liberty Broadband and Expedia
Holdings, and there are overlapping directors. Other than Liberty’s ownership of shares of Liberty Broadband’s non-voting
Series C common stock, none of the foregoing companies has any ownership interest in any of the others. Our executive
officers and the members of our company’s board of directors have fiduciary duties to our stockholders. Likewise, any such
persons who serve in similar capacities at LMC, TripAdvisor Holdings, Liberty Broadband or Expedia Holdings have
fiduciary duties to that company’s stockholders. Therefore, such persons may have conflicts of interest or the appearance of
conflicts of interest with respect to matters involving or affecting more than one of the companies to which they owe
fiduciary duties. For example, there may be the potential for a conflict of interest when our company, LMC, TripAdvisor
Holdings, Liberty Broadband or Expedia Holdings looks at acquisitions and other corporate opportunities that may be
suitable for each of them. Moreover, most of our company's directors and officers own LMC, TripAdvisor Holdings, Liberty
Broadband and Expedia Holdings stock and equity awards. These ownership interests could create, or appear to create,
potential conflicts of interest when the applicable individuals are faced with decisions that could have different implications
for our company, LMC, TripAdvisor Holdings, Liberty Broadband and/or Expedia Holdings. Any potential conflict that
qualifies as a "related party transaction" (as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as
amended) is subject to review by an independent committee of the applicable issuer's board of directors in accordance with
its corporate governance guidelines. Each of Liberty Broadband, TripAdvisor Holdings and Expedia Holdings has renounced
its rights to certain business opportunities and each company’s restated certificate of incorporation contains provisions
deeming directors and officers not in breach of their fiduciary duties in certain cases for directing a corporate opportunity to
another person or entity (including LMC, TripAdvisor Holdings, Liberty Broadband and Expedia Holdings) instead of such
company. Any other potential conflicts that arise will be addressed on a case-by-case basis, keeping in mind the applicable
fiduciary duties owed by the executive officers and directors of each issuer. From time to time, we may enter into
transactions with LMC, TripAdvisor Holdings, Liberty Broadband or Expedia Holdings and/or their subsidiaries or other
affiliates. There can be no assurance that the terms of any such transactions will be as favorable to our company, LMC,
TripAdvisor Holdings, Liberty Broadband, Expedia Holdings or any of their respective subsidiaries or affiliates as would be
the case where there is no overlapping officer or director.
The liquidity and value of our public investments may be affected by market conditions beyond our control that
could cause us to record losses for declines in their market value. Included among our assets are equity interests in
publicly-traded companies that are not consolidated subsidiaries. The value of these interests may be affected by economic
and market conditions that are beyond our control; and our ability to liquidate or otherwise monetize these interests without
adversely affecting their value may be limited. In addition, as of December 31, 2016, we owned (and attributed to our
Ventures Group) shares of Charter valued at approximately $1.5 billion and shares of Liberty Broadband, which is Charter's
largest stockholder with a 25.01% voting interest in Charter, valued at approximately $3.2 billion. The risks associated with
the business of Charter, and hence the business of Liberty Broadband, are different than those associated with the video and
online commerce industries in which our subsidiaries and equity affiliates operate. For additional information regarding these
risks and uncertainties, we refer the holders of Liberty Ventures common stock to “Item 1A, Risk Factors, Factors Relating to
Our Corporate History and Structure” and “Item 1A, Risk Factors, Factors Relating to Charter” of Liberty Broadband
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 17, 2017.
A substantial portion of our consolidated debt attributed to each group is held above the operating subsidiary level,
and we could be unable in the future to obtain cash in amounts sufficient to service that debt and our other financial
obligations. As of December 31, 2016, our wholly-owned subsidiary Liberty Interactive LLC (“Liberty LLC”) had $2,751
million principal amount of publicly-traded debt outstanding. Liberty LLC is a holding company for all of our subsidiaries
and investments. Our ability to meet the financial obligations of Liberty LLC and our other financial obligations will depend
on our ability to access cash. Our sources of cash include our available cash balances, net cash from operating activities,
dividends and interest from our investments, availability under credit facilities at the operating subsidiary level, monetization
of our public investment portfolio and proceeds from asset sales. There are no assurances that we will maintain the amounts
of cash, cash equivalents or marketable securities that we maintained over the past few years. The ability of our operating
subsidiaries, including QVC, to pay dividends or to make other payments or advances to us or
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Liberty LLC depends on their individual operating results, any statutory, regulatory or contractual restrictions to which they
may be or may become subject and the terms of their own indebtedness, including QVC’s credit facility and bond indentures.
The agreements governing such indebtedness restrict sales of assets and prohibit or limit the payment of dividends or the
making of distributions, loans or advances to stockholders and partners. Neither we nor Liberty LLC will generally receive
cash, in the form of dividends, loans, advances or otherwise, from our business affiliates. See “-We do not have the right to
manage our business affiliates attributed to either our QVC Group or our Ventures Group, which means we are not able to
cause those affiliates to act in a manner that we deem desirable” above.
We have disposed of certain of the reference shares underlying the exchangeable debentures of Liberty LLC
attributed to our Ventures Group, which exposes us to liquidity risk. Liberty LLC currently has outstanding multiple
tranches of exchangeable debentures in the aggregate principal amount of $1,960 million as of December 31, 2016. Under the
terms of these exchangeable debentures, which are attributed to our Ventures Group (other than the 1% Exchangeable Senior
Debentures due 2043, which are attributed to the QVC Group), the holders may elect to require Liberty LLC to exchange the
debentures for the value of a specified number of the underlying reference shares, which Liberty LLC may honor through
delivery of reference shares, cash or a combination thereof. Also, Liberty LLC is required to distribute to the holders of its
exchangeable debentures any cash, securities (other than publicly traded securities, which would themselves become
reference shares) or other payments made by the issuer of the reference shares in respect of those shares. The principal
amount of the debentures will be reduced by the amount of any such required distributions other than regular cash dividends.
As Liberty LLC has disposed of some of the reference shares underlying certain of these exchangeable debentures, any
exercise of the exchange right by, or required distribution of cash, securities or other payments to, holders of such debentures
will require that Liberty LLC fund the required payments from its own resources, which will depend on the availability of
cash or other sources of liquidity to Liberty LLC at that time. Additionally, in the event all reference shares underlying a
series of exchangeable debentures are liquidated or otherwise cease to be outstanding without replacement, there is a
possibility that the treatment of tax matters associated with that series could change. This may include acceleration of tax
liabilities that are recorded as deferred tax liabilities in our financial statements, in amounts that would be significant.
Risks Relating to the Ownership of Our Common Stock due to our Tracking Stock Capitalization
Holders of QVC Group tracking stock and Ventures Group tracking stock are common stockholders of our company
and are, therefore, subject to risks associated with an investment in our company as a whole, even if a holder does not
own shares of common stock of both of our groups. Even though we have attributed, for financial reporting purposes, all of
our consolidated assets, liabilities, revenue, expenses and cash flows to either the QVC Group or the Ventures Group in order
to prepare the separate financial statement schedules for each of those groups, we retain legal title to all of our assets and our
capitalization does not limit our legal responsibility, or that of our subsidiaries, for the liabilities included in any set of
financial statement schedules. Holders of QVC Group tracking stock and Ventures Group tracking stock do not have any
legal rights related to specific assets attributed to the QVC Group or the Ventures Group and, in any liquidation, holders of
QVC Group tracking stock and holders of Ventures Group tracking stock will be entitled to receive a pro rata share of our
available net assets based on their respective numbers of liquidation units.
Our board of directors' ability to reattribute businesses, assets and expenses between tracking stock groups may
make it difficult to assess the future prospects of either tracking stock group based on its past performance. Our board of
directors is vested with discretion to reattribute businesses, assets and liabilities that are attributed to one tracking stock group
to the other tracking stock group, without the approval of any of our stockholders. For example, in October 2014, our board
of directors approved the change in attribution from the QVC Group to the Ventures Group of certain Liberty online
commerce subsidiaries and approximately $1 billion in cash, without stockholder approval. Any reattribution made by our
board of directors, as well as the existence of the right in and of itself to effect a reattribution, may impact the ability of
investors to assess the future prospects of either tracking stock group, including its liquidity and capital resource needs, based
on its past performance. Stockholders may also have difficulty evaluating the liquidity and capital resources of each group
based on past performance, as our board of directors may use one group's liquidity to fund the other group's liquidity and
capital expenditure requirements through the use of inter-group loans and inter-group interests.
We could be required to use assets attributed to one group to pay liabilities attributed to the other group. The assets
attributed to one group are potentially subject to the liabilities attributed to the other group, even if those liabilities
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arise from lawsuits, contracts or indebtedness that are attributed to such other group. While our current management and
allocation policies provide that reattributions of assets between groups will result in the creation of an inter-group loan or an
inter-group interest or an offsetting reattribution of cash or other assets, no provision of our restated charter prevents us from
satisfying liabilities of one group with assets of the other group, and our creditors are not in any way limited by our tracking
stock capitalization from proceeding against any assets they could have proceeded against if we did not have a tracking stock
capitalization.
The market price of QVC Group tracking stock and Ventures Group tracking stock may not reflect the performance
of the QVC Group and the Ventures Group, respectively, as we intend. We cannot assure you that the market price of the
common stock of a group, in fact, will reflect the performance of the group of businesses, assets and liabilities attributed to
that group. Holders of QVC Group tracking stock and Ventures Group tracking stock are common stockholders of our
company as a whole and, as such, will be subject to all risks associated with an investment in our company and all of our
businesses, assets and liabilities. As a result, the market price of each series of stock of a group may simply reflect the
performance of our company as a whole or may more independently reflect the performance of some or all of the group of
assets attributed to such group. In addition, investors may discount the value of the stock of a group because it is part of a
common enterprise rather than a stand-alone entity.
The market price of QVC Group tracking stock and Ventures Group tracking stock may be volatile, could fluctuate
substantially and could be affected by factors that do not affect traditional common stock. The market prices of QVC
Group tracking stock and Ventures Group tracking stock may be materially affected by, among other things:
· actual or anticipated fluctuations in a group's operating results or in the operating results of particular companies
attributable to such group;
· potential acquisition activity by our company, our subsidiaries or our business affiliates;
· issuances of debt or equity securities to raise capital by our company, our subsidiaries or our business affiliates and the
manner in which that debt or the proceeds of an equity issuance are attributed to each of the groups;
· changes in financial estimates by securities analysts regarding QVC Group tracking stock or Ventures Group tracking
stock or the companies attributable to either of our tracking stock groups;
· the complex nature and the potential difficulties investors may have in understanding the terms of both of our tracking
stocks, as well as concerns regarding the possible effect of certain of those terms on an investment in our stock; and
·
general market conditions.
The market value of QVC Group tracking stock and Ventures Group tracking stock could be adversely affected by
events involving the assets and businesses attributed to either of the groups. Because we are the issuer of QVC Group
tracking stock and Ventures Group tracking stock, an adverse market reaction to events relating to the assets and businesses
attributed to either of our groups, such as earnings announcements, announcements of new products or services, or
acquisitions or dispositions that the market does not view favorably, may cause an adverse reaction to the common stock of
our other group. This could occur even if the triggering event is not material to us as a whole. A certain triggering event may
also have a greater impact on one group than the same triggering event would have on the other group due to the asset
composition of the affected group. In addition, the incurrence of significant indebtedness by us or any of our subsidiaries on
behalf of one group, including indebtedness incurred or assumed in connection with acquisitions of or investments in
businesses, could affect our credit rating and that of our subsidiaries and, therefore, could increase the borrowing costs of
businesses attributable to our other group or the borrowing costs of our company as a whole.
We may not pay dividends equally or at all on QVC Group tracking stock or Ventures Group tracking stock. We do
not presently intend to pay cash dividends on QVC Group tracking stock or Ventures Group tracking stock for the foreseeable
future. However, we will have the right to pay dividends on the shares of common stock of each group in equal or unequal
amounts, and we may pay dividends on the shares of common stock of one group and not pay dividends on shares of
common stock of the other group. In addition, any dividends or distributions on, or repurchases of, shares relating to either
group will reduce our assets legally available to be paid as dividends on the shares relating to the other group.
Our tracking stock capital structure could create conflicts of interest, and our board of directors may make decisions
that could adversely affect only some holders of our common stock. Our tracking stock capital structure could
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give rise to occasions when the interests of holders of stock of one group might diverge or appear to diverge from the
interests of holders of stock of the other group. In addition, given the nature of their businesses, there may be inherent
conflicts of interests between the QVC Group and the Ventures Group. Our tracking stock groups are not separate entities and
thus holders of QVC Group tracking stock and Ventures Group tracking stock do not have the right to elect separate boards of
directors. As a result, our company's officers and directors owe fiduciary duties to our company as a whole and all of our
stockholders as opposed to only holders of a particular group. Decisions deemed to be in the best interest of our company and
all of our stockholders may not be in the best interest of a particular group when considered independently. Examples
include:
· decisions as to the terms of any business relationships that may be created between the QVC Group and the Ventures
Group or the terms of any reattributions of assets or liabilities between the groups;
· decisions as to the allocation of consideration among the holders of QVC Group tracking stock and Ventures Group
tracking stock, or among the series of stocks relating to either of our groups, to be received in connection with a
merger involving our company;
· decisions as to the allocation of corporate opportunities between the groups, especially where the opportunities might
meet the strategic business objectives of both groups;
· decisions as to operational and financial matters that could be considered detrimental to one group but beneficial to the
other;
· decisions as to the conversion of shares of common stock of one group into shares of common stock of the other;
· decisions regarding the creation of, and, if created, the subsequent increase or decrease of any inter-group interest that
one group may own in the other group;
· decisions as to the internal or external financing attributable to businesses or assets attributed to either of our groups;
· decisions as to the dispositions of assets of either of our groups; and
· decisions as to the payment of dividends on the stock relating to either of our groups.
Our directors' or officers' ownership of QVC Group tracking stock and Ventures Group tracking stock may create or
appear to create conflicts of interest. If directors or officers own disproportionate interests (in percentage or value terms) in
QVC Group tracking stock or Ventures Group tracking stock, that disparity could create or appear to create conflicts of
interest when they are faced with decisions that could have different implications for the holders of QVC Group tracking
stock or Ventures Group tracking stock.
Other than pursuant to our management and allocation policies, we have not adopted any specific procedures for
consideration of matters involving a divergence of interests among holders of shares of stock relating to our two groups,
or among holders of different series of stock relating to a specific group. Rather than develop additional specific
procedures in advance, our board of directors intends to exercise its judgment from time to time, depending on the
circumstances, as to how best to:
· obtain information regarding the divergence (or potential divergence) of interests;
· determine under what circumstances to seek the assistance of outside advisers;
· determine whether a committee of our board of directors should be appointed to address a specific matter and the
appropriate members of that committee; and
· assess what is in our best interests and the best interests of all of our stockholders.
Our board of directors believes the advantage of retaining flexibility in determining how to fulfill its responsibilities in
any such circumstances as they may arise outweighs any perceived advantages of adopting additional specific procedures in
advance.
Our board of directors may change the management and allocation policies to the detriment of either group without
stockholder approval. Our board of directors has adopted certain management and allocation policies to serve as guidelines
in making decisions regarding the relationships between the QVC Group and the Ventures Group with respect to matters such
as tax liabilities and benefits, inter-group loans, inter-group interests, attribution of assets, financing
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alternatives, corporate opportunities and similar items. These policies also set forth the initial focuses and strategies of these
groups and the initial attribution of our businesses, assets and liabilities between them. These policies are not included in the
restated certificate of incorporation (the “restated charter”). Our board of directors may at any time change or make
exceptions to these policies. Because these policies relate to matters concerning the day-to-day management of our company
as opposed to significant corporate actions, such as a merger involving our company or a sale of substantially all of our
assets, no stockholder approval is required with respect to their adoption or amendment. A decision to change, or make
exceptions to, these policies or adopt additional policies could disadvantage one group while advantaging the other.
Holders of shares of stock relating to a particular group may not have any remedies if any action by our directors or
officers has an adverse effect on only that stock, or on a particular series of that stock. Principles of Delaware law and the
provisions of our restated charter may protect decisions of our board of directors that have a disparate impact upon holders of
shares of stock relating to a particular group, or upon holders of any series of stock relating to a particular group. Under
Delaware law, the board of directors has a duty to act with due care and in the best interests of all of our stockholders,
regardless of the stock, or series, they hold. Principles of Delaware law established in cases involving differing treatment of
multiple classes or series of stock provide that a board of directors owes an equal duty to all stockholders and does not have
separate or additional duties to any subset of stockholders. Judicial opinions in Delaware involving tracking stocks have
established that decisions by directors or officers involving differing treatment of holders of tracking stocks may be judged
under the “business judgment rule.” In some circumstances, our directors or officers may be required to make a decision that
is viewed as adverse to the holders of shares relating to a particular group or to the holders of a particular series of that stock.
Under the principles of Delaware law and the business judgment rule referred to above, a stockholder may not be able to
successfully challenge decisions that a stockholder believes have a disparate impact upon the stockholders of one of our
groups if a majority of our board of directors is disinterested and independent with respect to the action taken, is adequately
informed with respect to the action taken and acts in good faith and in the honest belief that the board is acting in the best
interest of Liberty and all of our stockholders.
Stockholders will not vote on how to attribute consideration received in connection with a merger involving our
company among holders of QVC Group tracking stock and Ventures Group tracking stock. Our restated charter does not
contain any provisions governing how consideration received in connection with a merger or consolidation involving our
company is to be attributed to the holders of QVC Group tracking stock and holders of Ventures Group tracking stock or to
the holders of different series of stock, and none of the holders of QVC Group tracking stock or Ventures Group tracking
stock will have a separate class vote in the event of such a merger or consolidation. Consistent with applicable principles of
Delaware law, our board of directors will seek to divide the type and amount of consideration received in a merger or
consolidation involving our company among holders of QVC Group tracking stock and Ventures Group tracking stock in a
fair manner. As the different ways the board of directors may divide the consideration between holders of stock relating to the
different groups, and among holders of different series of a particular stock, might have materially different results, the
consideration to be received by holders of QVC Group tracking stock and Ventures Group tracking stock in any such merger
or consolidation may be materially less valuable than the consideration they would have received if they had a separate class
vote on such merger or consolidation.
We may dispose of assets of the QVC Group or the Ventures Group without your approval. Delaware law requires
stockholder approval only for a sale or other disposition of all or substantially all of the assets of our company taken as a
whole, and our restated charter does not require a separate class vote in the case of a sale of a significant amount of assets of
any of our groups. As long as the assets attributed to the QVC Group or the Ventures Group proposed to be disposed of
represent less than substantially all of our assets, we may approve sales and other dispositions of any amount of the assets of
such group without any stockholder approval.
If we dispose of all or substantially all of the assets attributed to any group (which means, for this purpose, assets
representing 80% of the fair market value of the total assets of the disposing group, as determined by our board of directors),
we would be required, if the disposition is not an exempt disposition under the terms of our restated charter, to choose one or
more of the following three alternatives:
· declare and pay a dividend on the disposing group's common stock;
· redeem shares of the disposing group's common stock in exchange for cash, securities or other property; and/or
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· convert all or a portion of the disposing group's outstanding common stock into common stock of the other group.
In this type of a transaction, holders of the disposing group's common stock may receive less value than the value that a
third-party buyer might pay for all or substantially all of the assets of the disposing group.
Our board of directors will decide, in its sole discretion, how to proceed and is not required to select the option that
would result in the highest value to holders of any group of our common stock.
Holders of QVC Group tracking stock or Ventures Group tracking stock may receive less consideration upon a sale
of the assets attributed to that group than if that group were a separate company. If the QVC Group or the Ventures Group
were a separate, independent company and its shares were acquired by another person, certain costs of that sale, including
corporate level taxes, might not be payable in connection with that acquisition. As a result, stockholders of a separate,
independent company with the same assets might receive a greater amount of proceeds than the holders of QVC Group
tracking stock or Ventures Group tracking stock would receive upon a sale of all or substantially all of the assets of the group
to which their shares relate. In addition, we cannot assure our stockholders that in the event of such a sale the per share
consideration to be paid to holders of QVC Group tracking stock or Ventures Group tracking stock, as the case may be, will
be equal to or more than the per share value of that share of stock prior to or after the announcement of a sale of all or
substantially all of the assets of the applicable group. Further, there is no requirement that the consideration paid be tax-free
to the holders of the shares of common stock of that group. Accordingly, if we sell all or substantially all of the assets
attributed to the QVC Group or the Ventures Group, our stockholders could suffer a loss in the value of their investment in
our company.
In the event of a liquidation of Liberty, holders of Ventures Group tracking stock and QVC Group tracking stock will
not have a priority with respect to the assets attributed to the related tracking stock group remaining for distribution to
stockholders. Under the restated charter, upon Liberty's liquidation, dissolution or winding up, holders of the Ventures
Group tracking stock and the QVC Group tracking stock will be entitled to receive, in respect of their shares of such stock,
their proportionate interest in all of Liberty's assets, if any, remaining for distribution to holders of common stock in
proportion to their respective number of "liquidation units" per share. Relative liquidation units were determined based on the
volume weighted average prices of the Ventures Group tracking stock and the QVC Group tracking stock over the 20 trading
day period which commenced shortly after the initial filing of the restated charter. Hence, the assets to be distributed to a
holder of either tracking stock upon a liquidation, dissolution or winding up of Liberty will have nothing to do with the value
of the assets attributed to the related tracking stock group or to changes in the relative value of the QVC Group tracking stock
and the Ventures Group tracking stock over time.
Our board of directors may in its sole discretion elect to convert the common stock relating to one group into
common stock relating to the other group, thereby changing the nature of your investment and possibly diluting your
economic interest in our company, which could result in a loss in value to you. Our restated charter permits our board of
directors, in its sole discretion, to convert all of the outstanding shares of common stock relating to either of our groups into
shares of common stock of the other group on specified terms. A conversion would preclude the holders of stock in each
group involved in such conversion from retaining their investment in a security that is intended to reflect separately the
performance of the relevant group. We cannot predict the impact on the market value of our stock of (1) our board of
directors' ability to effect any such conversion or (2) the exercise of this conversion right by our company. In addition, our
board of directors may effect such a conversion at a time when the market value of our stock could cause the stockholders of
one group to be disadvantaged.
Holders of QVC Group tracking stock and Ventures Group tracking stock will vote together and will have limited
separate voting rights. Holders of QVC Group tracking stock and Ventures Group tracking stock will vote together as a
single class, except in certain limited circumstances prescribed by our restated charter and under Delaware law. Each share of
Series B common stock of each group has ten votes per share, and each share of Series A common stock of each group has
one vote per share. Holders of Series C common stock of each group have no voting rights, other than those required under
Delaware law. When holders of QVC Group tracking stock and Ventures Group tracking stock vote together as a single class,
holders having a majority of the votes will be in a position to control the outcome of the vote even if the matter involves a
conflict of interest among our stockholders or has a greater impact on one group than the other.
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Transactions in our common stock by our insiders could depress the market price of our common stock. Sales of or
hedging transactions such as collars relating to our shares by our Chairman of the Board or any of our other directors or
executive officers could cause a perception in the marketplace that our stock price has peaked or that adverse events or trends
have occurred or may be occurring at our company. This perception can result notwithstanding any personal financial
motivation for these insider transactions. As a result, insider transactions could depress the market price for shares of one or
more series of our tracking stocks.
Our capital structure, as well as the fact that the QVC Group and the Ventures Group are not independent
companies, may inhibit or prevent acquisition bids for the QVC Group or the Ventures Group and may make it difficult
for a third party to acquire us, even if doing so may be beneficial to our stockholders. If the QVC Group and the Ventures
Group were separate independent companies, any person interested in acquiring the QVC Group or the Ventures Group
without negotiating with management could seek control of that group by obtaining control of its outstanding voting stock,
by means of a tender offer, or by means of a proxy contest. Although we intend QVC Group tracking stock and Ventures
Group tracking stock to reflect the separate economic performance of the QVC Group and the Ventures Group, respectively,
those groups are not separate entities and a person interested in acquiring only one group without negotiation with our
management could obtain control of that group only by obtaining control of a majority in voting power of all of the
outstanding shares of common stock of our company. The existence of shares of common stock, and different series of
shares, relating to different groups could present complexities and in certain circumstances pose obstacles, financial and
otherwise, to an acquiring person that are not present in companies that do not have capital structures similar to ours.
Certain provisions of our restated charter and bylaws may discourage, delay or prevent a change in control of our
company that a stockholder may consider favorable. These provisions include:
· authorizing a capital structure with multiple series of common stock, a Series B common stock of each group that
entitles the holders to ten votes per share, a Series A common stock of each group that entitles the holder to one vote
per share, and a Series C common stock of each group that except as otherwise required by applicable law, entitles the
holder to no voting rights;
· classifying our board of directors with staggered three-year terms, which may lengthen the time required to gain
control of our board of directors;
· limiting who may call special meetings of stockholders;
· prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of
the stockholders;
· establishing advance notice requirements for nominations of candidates for election to the board of directors or for
proposing matters that can be acted upon by stockholders at stockholder meetings;
· requiring stockholder approval by holders of at least 66 2/3% of our aggregate voting power or the approval by at least
75% of our board of directors with respect to certain extraordinary matters, such as a merger or consolidation of our
company, a sale of all or substantially all of our assets or an amendment to our restated charter; and
· the existence of authorized and unissued stock, including "blank check" preferred stock, which could be issued by our
board of directors to persons friendly to our then current management, thereby protecting the continuity of our
management, or which could be used to dilute the stock ownership of persons seeking to obtain control of our
company.
Our chairman, John C. Malone, beneficially owns shares representing the power to direct approximately 38% of the
aggregate voting power in our company, due to his beneficial ownership of approximately 94% and 94% of the outstanding
shares of each of our Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively, as of
January 31, 2017.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties.
We lease our corporate headquarters in Englewood, Colorado under a facilities agreement with LMC. All of our other
real or personal property is owned or leased by our subsidiaries and business affiliates.
QVC owns its corporate headquarters and operations center in West Chester, Pennsylvania, which consist of office space
and include executive offices, television studios, showrooms, broadcast facilities and administrative offices for QVC. QVC
also owns call centers in San Antonio, Texas; Chesapeake, Virginia; Bochum and Kassel, Germany; and Chiba-Shi,
Japan. QVC owns distribution centers in Lancaster, Pennsylvania; Suffolk, Virginia; Rocky Mount, North Carolina; Florence,
South Carolina; Ontario, California; Chiba, Japan; and Hücklehoven, Germany. The construction of the distribution center in
Ontario, California was completed in August of 2016. Additionally, QVC owns multi-functional buildings in Knowsley,
United Kingdom, Chiba, Japan and Brugherio, Italy. In Germany, QVC owns its administrative offices within the
headquarters located in Düsseldorf, Germany which also includes leased television studios and broadcast facilities. To
supplement the facilities QVC owns, it also leases various facilities worldwide.
zulily leases its corporate headquarters in Seattle, Washington, fulfillment centers in Lockbourne, Ohio, McCarran,
Nevada and Bethlehem, Pennsylvania, and a corporate office in Gahanna, Ohio.
Our other subsidiaries and business affiliates own or lease the fixed assets necessary for the operation of their respective
businesses, including office space, transponder space, headends, cable television and telecommunications distribution
equipment and telecommunications switches.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities.
Market Information
On October 3, 2014, Liberty Interactive Corporation, formerly known as Liberty Media Corporation (“Liberty,” the
“Company,” “we,” “us” and “our”), reattributed from the Interactive Group to the Ventures Group approximately $1 billion
in cash and its Digital Commerce businesses (as defined below). Subsequent to the reattribution, the Interactive Group is now
referred to as the QVC Group. In connection with the reattribution, the Liberty Interactive tracking stock trading symbol
“LINTA” was changed to "QVCA" and the "LINTB" tracking stock trading symbol was changed to "QVCB," effective
October 7, 2014. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC
Group common stock.” In connection with the Expedia Holdings Split-Off (as defined below), Liberty redeemed (i) 0.4 of
each outstanding share of Liberty’s Series A and Series B Liberty Ventures common stock for 0.4 of a share of Expedia
Holdings Series A and Series B common stock, respectively, at 5:00 p.m., New York City time, on November 4,
2016. Accordingly, the high and low sales prices of the Series A and Series B Liberty Ventures common stock have been
retroactively restated in the table below. Each series of our common stock trades on the Nasdaq Global Select Market. The
following table sets forth the range of high and low sales prices of shares of our common stock for the years ended December
31, 2016 and 2015.
QVC Group
Series A (QVCA)
High
Low High
Series B (QVCB)
Low
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
$
$
$
$
$
$
29.73
29.70
31.62
28.71
26.97
27.25
27.06
22.33
27.03
27.01
24.72
25.01
22.51
23.01
18.42
17.88
30.10
30.06
30.75
28.26
30.62
26.98
26.69
24.10
27.45
27.91
25.80
26.02
24.40
24.02
19.00
17.78
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2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter (July 1 - July 22)
Third quarter (July 23 - September 30) (1)
Fourth quarter (October 1 - November 4)
Fourth quarter (November 5 - December 31) (2)
Liberty Ventures
Series A (LVNTA)
High
Low
Series B (LVNTB)
Low
High
$
$
$
$
$
$
$
$
$
$
38.31
41.06
39.57
41.03
40.22
36.55
38.59
40.80
41.37
41.74
31.64
35.13
32.08
35.96
29.24
30.97
32.76
36.09
38.40
36.54
37.88
40.62
40.70
42.24
36.83
36.72
37.87
39.89
41.57
41.94
33.60
34.42
35.46
39.08
33.14
34.36
37.33
38.05
39.29
36.93
(1)As discussed in Part I of this report, the CommerceHub Spin-Off (as defined below) was effected on July 22, 2016 as
a pro-rata dividend of shares of CommerceHub to the stockholders of Liberty’s Series A and Series B Liberty
Ventures common stock.
(2)As discussed in Part I of this report, the Expedia Holdings Split-Off was effected on November 4, 2016 as a
redemption of Liberty’s Series A and Series B Liberty Ventures common stock for shares of Expedia Holdings.
Holders
As of January 31, 2017, there were 1,717 and 99 record holders of our Series A and Series B QVC Group common
stock, respectively, and 1,083 and 64 record holders of our Series A and Series B Liberty Ventures common stock,
respectively. The foregoing numbers of record holders do not include the number of stockholders whose shares are held
nominally by banks, brokerage houses or other institutions, but include each such institution as one shareholder.
Dividends
We have not paid any cash dividends on our common stock, and we have no present intention of so doing. Payment of
cash dividends, if any, in the future will be determined by our board of directors in light of our earnings, financial condition
and other relevant considerations.
Securities Authorized for Issuance Under Equity Compensation Plans
Information required by this item will be is incorporated by reference to our definitive proxy statement for our 2017
Annual Meeting of Stockholders that will be filed with the Securities and Exchange Commission on or before May 1, 2017.
Purchases of Equity Securities by the Issuer
Share Repurchase Programs
On several occasions our board of directors has authorized a share repurchase program for our Series A and Series B
QVC Group common stock. On each of May 5, 2006, November 3, 2006 and October 30, 2007 our board authorized the
repurchase of $1 billion of Series A and Series B Liberty Interactive common stock for a total of $3 billion. These previous
authorizations remained effective following the LMC Split-Off, notwithstanding the fact that the Liberty Interactive common
stock ceased to be a tracking stock during the period following the LMC Split-Off (as defined below) and prior to the
creation of our Liberty Ventures common stock in August 2012. On February 22, 2012 the board authorized the repurchase
of an additional $700 million of Series A and Series B Liberty Interactive common. Additionally, on each of October 30,
2012 and February 27, 2014, the board authorized the repurchase of an additional $1 billion of Series A and Series B Liberty
Interactive common stock. In connection with the TripAdvisor Holdings Spin-Off (as defined below)
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during August 2014, the board authorized $350 million for the repurchase of either the Liberty Interactive or Liberty
Ventures tracking stocks. In October 2014, the board authorized the repurchase of an additional $650 million of Series A and
Series B Liberty Ventures common stock. In August 2015, the board authorized the repurchase of an additional $1 billion of
Series A or Series B QVC Group common stock. In addition, on October 26, 2016, the board authorized the repurchase of an
additional $300 million of either the QVC Group common stock or the Liberty Ventures common stock.
A summary of the repurchase activity for the three months ended December 31, 2016 is as follows:
Series A QVC Group Common Stock (QVCA)
Period
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
Period
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
Total Number
of Shares
Purchased
Average
Shares Purchased as Part
Total Number of
Price Paid per
of Publicly Announced
Plans or Programs
Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be purchased
Under the Plans or
Programs
751,582 $
2,901,493 $
5,794,210
$
9,447,285
Share
19.96
21.05
20.60
751,582 $
2,901,493 $
5,794,210 $
9,447,285
331 million
270 million
150 million
Series B Liberty Ventures Common Stock (LVNTB)
Total Number
of Shares
Purchased/
surrendered (1)
Average
Shares Purchased as Part
Total Number of
Price Paid per
—
91 $
—
91 $
Share
39.01
39.01
of Publicly Announced
Plans or Programs
—
—
—
—
Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be purchased
Under the Plans or
Programs
(1)In connection with the Expedia Holdings Split-Off, holders of Liberty Ventures common stock were paid cash in lieu
of fractional shares of Series A and Series B Liberty Ventures common stock. In order to fund the cash payments
made to holders of shares of Series B Liberty Ventures common stock, the fractional shares that would have otherwise
been issued to those holders were aggregated by the Company’s transfer agent and repurchased by Liberty.
25,450 shares of Series A QVC Group common stock and 3,376 shares of Series A Liberty Ventures common stock were
surrendered by certain of our officers and employees to pay withholding taxes and other deductions in connection with the
vesting of their restricted stock during the three months ended December 31, 2016.
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Item 6. Selected Financial Data.
The following tables present selected historical information relating to our financial condition and results of operations
for the past five years. Certain prior period amounts have been reclassified for comparability with the current year
presentation. The following data should be read in conjunction with our consolidated financial statements.
Summary Balance Sheet Data:
Cash and cash equivalents
Investments in available-for-sale securities and other cost
investments
Investment in affiliates, accounted for using the equity method
Investment in Liberty Broadband measured at fair value
Intangible assets not subject to amortization
Noncurrent assets of discontinued operations (1) (2)
Total assets
Long-term debt
Deferred income tax liabilities
Noncurrent liabilities of discontinued operations (1) (2)
Total equity
Noncontrolling interest in equity of subsidiaries (1)
December 31,
2016
2015
2014
2013
2012
amounts in millions
$
825
2,449
2,306
902
2,291
$ 1,922
$
581
$ 3,161
$ 9,354
$
—
$ 20,355
$ 7,166
$ 3,636
$
—
$ 6,861
89
$
1,353
714
—
9,485
927
21,180
7,481
3,217
285
6,875
88
1,224
1,119
—
7,893
514
18,598
7,062
2,681
140
5,780
107
1,313
760
—
8,383
7,572
24,642
6,072
2,794
1,584
11,435
4,499
1,720
420
—
8,424
7,859
26,223
5,873
2,805
1,878
12,051
4,489
Years ended December 31,
2016
2015 2014 2013 2012
amounts in millions,
except per share amounts
Summary Statement of Operations Data:
Revenue
Operating income (loss)
Interest expense
Share of earnings (losses) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Earnings (loss) from continuing operations (3):
Liberty Interactive Corporation common stock
QVC Group common stock
Liberty Ventures common stock
Basic earnings (loss) from continuing operations attributable to Liberty Interactive Corporation
stockholders per common share (4):
Series A and Series B Liberty Interactive Corporation common stock
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted earnings (loss) from continuing operations attributable to Liberty Interactive Corporation
stockholders per common share (4):
Series A and Series B Liberty Interactive Corporation common stock
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock (2)
$ 10,647 9,989 10,499 10,219 9,888
1,136 1,163
$
(466)
(380)
$
(20)
2
$
(81)
(22)
$
—
(1)
$
968 1,116
(360)
(363)
(178)
(68)
114
1,175
110
9
1,188
(387)
(19)
(57)
74
NA
511
743
1,254
NA
674
(43)
631
NA
574
(36)
538
NA
500
27
527
33
291
125
449
NA
0.99
5.54
NA
1.35
(0.36)
NA
1.10
(0.43)
NA
0.88
0.37
—
0.48
1.89
NA
0.98
5.49
NA
1.33
(0.36)
NA
1.09
(0.43)
NA
0.86
0.36
—
0.47
1.87
$
$
$
$
$
$
$
(1) On December 11, 2012, we acquired approximately 4.8 million additional shares of common stock of TripAdvisor, Inc.
("TripAdvisor") (an additional 4% equity ownership interest), for $300 million, along with the right to control the vote of
the shares of TripAdvisor's common stock and class B common stock we own. Following the transaction we owned
approximately 22% of the equity and 57% of the total votes of all classes of TripAdvisor common stock. On August 27,
2014, we completed the TripAdvisor Holdings Spin-Off. At the time of the TripAdvisor Holdings Spin-Off, TripAdvisor
Holdings (as defined below) was comprised of Liberty’s former interest in TripAdvisor as well as
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BuySeasons, Inc., Liberty’s former wholly-owned subsidiary, and corporate level debt. Following the completion of the
TripAdvisor Holdings Spin-Off, Liberty and TripAdvisor Holdings operate as separate, publicly traded companies, and
neither has any stock ownership, beneficial or otherwise, in the other. The consolidated financial statements of Liberty
have been prepared to reflect TripAdvisor Holdings as discontinued operations. However, the noncontrolling interest
attributable to our former ownership interest in TripAdvisor is included in the noncontrolling interest line item in the
consolidated balance sheet from the date of acquisition until the date of completion of the TripAdvisor Holdings Spin-
Off. See note 6 of the accompanying consolidated financial statements for further details on the TripAdvisor Holdings
Spin-Off.
(2) The Expedia Holdings Split-Off was effected on November 4, 2016 as a split-off through the redemption of a portion of
Liberty’s Series A and Series B Liberty Ventures common stock for shares of Expedia Holdings (as defined below). The
consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest in Expedia (as defined
below) as a discontinued operation.
(3)
Includes earnings (losses) from continuing operations attributable to the noncontrolling interests of $39 million, $42
million, $40 million, $45 million and $63 million for the years ended December 31, 2016, 2015, 2014, 2013 and 2012,
respectively.
(4) Basic and diluted earnings per share have been calculated for Liberty Interactive Corporation common stock for the
periods from May 9, 2006 to August 9, 2012. Basic and diluted earnings per share have been calculated for QVC Group
common stock and Liberty Ventures common stock subsequent to August 9, 2012.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information concerning our results of operations and financial
condition. This discussion should be read in conjunction with our accompanying consolidated financial statements and the
notes thereto. Additionally, see note 3 in the accompanying consolidated financial statements for an overview of new
accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial
statements.
Overview
We own controlling and non-controlling interests in a broad range of video and online commerce companies. Our
largest business and reportable segment, is QVC, Inc. (“QVC”). QVC markets and sells a wide variety of consumer products
in the United States and several foreign countries, primarily by means of its televised shopping programs and via the Internet
through its domestic and international websites and mobile applications. On October 1, 2015, we acquired zulily, inc.
(“zulily”) (now known as zulily, llc), an online retailer offering customers a fun and entertaining shopping experience with a
fresh selection of new product styles launched every day. See note 5 of the accompanying consolidated financial statements
for further details on the acquisition of zulily.
Our “Corporate and Other” category includes entire or majority interests in consolidated subsidiaries, which operate
online commerce businesses in a broad range of retail categories, ownership interests in unconsolidated businesses and
corporate expenses. These consolidated subsidiaries include Evite, Inc. (“Evite”), Provide Commerce, Inc. (“Provide”)
(through December 31, 2014, see note 9 of the accompanying consolidated financial statements), Backcountry.com, Inc.
("Backcountry") (through June 30, 2015, see note 6 of the accompanying consolidated financial statements), CommerceHub,
Inc. (“CommerceHub”) (through July 22, 2016, see note 6 of the accompanying consolidated financial statements) and
Bodybuilding.com, LLC ("Bodybuilding") (through November 4, 2016, see note 6 of the accompanying consolidated
financial statements) (collectively, the “Digital Commerce businesses”). Evite is an online invitation and social event
planning service on the web. Provide operates an e-commerce marketplace of websites for perishable goods, including
flowers, fruits and desserts, as well as upscale personalized gifts. Backcountry operates websites offering sports gear and
clothing for outdoor and active individuals in a variety of categories. CommerceHub provides a cloud-based platform for
online retailers and their suppliers (manufacturers and distributors) to sell products to consumers without physically owning
inventory, or managing the fulfillment of those products. Bodybuilding manages websites related to sports nutrition,
bodybuilding and fitness. We also hold ownership interests in FTD Companies, Inc. (“FTD”), HSN, Inc. (“HSN”) and
LendingTree, which we account for as equity method investments; an interest in Liberty Broadband Corporation (“Liberty
Broadband”), which we account for at fair value; and we maintain investments and related financial instruments in public
companies such as Charter Communications, Inc. (“Charter”), Interval Leisure Group, Inc. (“Interval”) and Time Warner Inc.
(“Time Warner”), which are accounted for at their respective fair market values.
On August 9, 2012, Liberty completed the approved recapitalization of its common stock through the creation of the
Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. In the recapitalization, each holder
of Liberty Interactive Corporation common stock remained a holder of the same amount and series of Liberty Interactive
common stock and received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a
dividend, with cash issued in lieu of fractional shares of Liberty Ventures common stock.
On October 3, 2014, Liberty reattributed from the QVC Group to the Ventures Group its Digital Commerce businesses.
In connection with the reattribution, each holder of Liberty Interactive common stock received 0.14217 of a share of the
corresponding series of Liberty Ventures common stock for each share of Liberty Interactive common stock held as of the
record date, with cash paid in lieu of fractional shares. The distribution date for the dividend was on October 20, 2014, and
the Liberty Interactive common stock began trading ex-dividend on October 15, 2014 which resulted in an aggregate of 67.7
million shares of Series A and Series B Liberty Ventures common stock being issued. The reattribution of the Digital
Commerce businesses is presented on a prospective basis from the date of the reattribution in Liberty’s consolidated financial
statements and attributed financial information, with October 1, 2014 used as a proxy for the date of the reattribution. Other
than the issuance of Liberty Ventures shares in the fourth quarter of 2014, the reattribution had no consolidated impact on
Liberty. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group
common stock.”
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The term "Ventures Group" does not represent a separate legal entity, rather it represents those businesses, assets and
liabilities that have been attributed to that group. Following the reattribution, the Ventures Group is comprised primarily of
our interests in FTD, LendingTree, Inc. (“LendingTree”) and Liberty Broadband, the Digital Commerce businesses,
investments in Charter, Interval and Time Warner, as well as cash in the amount of approximately $487 million (at
December 31, 2016), including subsidiary cash. The Ventures Group also has attributed to it certain liabilities related to our
Exchangeable Debentures and certain deferred tax liabilities. The Ventures Group is primarily focused on the maximization
of the value of these investments and investing in new business opportunities.
The term "QVC Group" does not represent a separate legal entity, rather it represents those businesses, assets and
liabilities that have been attributed to that group. The QVC Group is primarily focused on our video operating businesses.
Following the reattribution, the QVC Group has attributed to it the remainder of our businesses and assets, including our
wholly-owned subsidiaries QVC and zulily (as of October 1, 2015), and our 38% interest in HSN, Inc. as well as cash in the
amount of approximately $338 million (at December 31, 2016), including subsidiary cash.
Disposals
On August 27, 2014, Liberty completed the spin-off to holders of its Liberty Ventures common stock shares of its
former wholly-owned subsidiary, Liberty TripAdvisor Holdings, Inc. (“TripAdvisor Holdings”) (the “TripAdvisor Holdings
Spin-Off”), which was effected as a pro-rata dividend of shares of TripAdvisor Holdings to the stockholders of
Liberty’s Series A and Series B Liberty Ventures common stock. At the time of the TripAdvisor Holdings Spin-Off,
TripAdvisor Holdings was comprised of Liberty’s former 22% economic and 57% voting interest in TripAdvisor as well as
BuySeasons, Liberty’s former wholly-owned subsidiary, and a corporate level net debt balance of $350 million. In connection
with the TripAdvisor Holdings Spin-Off during August 2014, TripAdvisor Holdings drew down $400 million in margin loans
and distributed approximately $350 million to Liberty. Concurrently with the margin loans, Liberty and TripAdvisor
Holdings entered into a promissory note that expires in August 2017 pursuant to which TripAdvisor Holdings may request, if
the closing price per share of TripAdvisor common stock were to fall below certain minimum values, up to $200 million in
funds from Liberty. The TripAdvisor Holdings Spin-Off has been recorded at historical cost due to the pro rata nature of the
distribution. Following the completion of the TripAdvisor Holdings Spin-Off, Liberty and TripAdvisor Holdings operate as
separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. The
consolidated financial statements of Liberty have been prepared to reflect TripAdvisor Holdings as discontinued operations.
Accordingly, the assets and liabilities, revenue, costs and expenses, and cash flows of the businesses, assets and liabilities
owned by TripAdvisor Holdings at the time of the TripAdvisor Holdings Spin-Off have been excluded from the respective
captions in the accompanying consolidated balance sheets, statements of operations, comprehensive earnings and cash flows
in such consolidated financial statements.
On December 31, 2014, Liberty sold Provide to FTD. Under the terms of the transaction, Liberty received approximately
10.2 million shares of FTD common stock representing approximately 35% of the combined company and approximately
$145 million in cash. We recognized a gain of $75 million as a result of this transaction, which is included in the Gains
(losses) on transactions, net line item in the consolidated statements of operations. Given our significant continuing
involvement with FTD, Provide is not presented as a discontinued operation in the consolidated financial statements of
Liberty.
On June 30, 2015, Liberty sold Backcountry for aggregate consideration, including assumption of debt, amounts held in
escrow, and a noncontrolling interest, of approximately $350 million. The sale resulted in a $105 million gain, which is
included in “Gains (losses) on transactions, net” in the accompanying consolidated statements of operations. Backcountry is
included in the Corporate and other segment through June 30, 2015 and is not presented as a discontinued operation as the
sale did not represent a strategic shift that had a major effect on Liberty’s operations and financial results.
On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former
wholly-owned subsidiary CommerceHub. CommerceHub is included in the Corporate and other segment through July 22,
2016 and is not presented as a discontinued operation as the CommerceHub Spin-Off did not represent a strategic shift that
had a major effect on Liberty’s operations and financial results.
On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its
former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). Expedia Holdings is comprised
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of, among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned subsidiary
Bodybuilding. On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed
$299 million, net of certain debt related costs, to Liberty on November 4, 2016.
Liberty views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued
operations presentation. Based on a quantitative analysis, the split-off of Liberty’s interest in Expedia represents a strategic
shift that has a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by
Expedia. Accordingly, the consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest in
Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off does not
have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The
disposition of Bodybuilding does not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not
presented as a discontinued operation in the consolidated financial statements of Liberty. Bodybuilding is included in the
Corporate and other segment through November 4, 2016.
Strategies and Challenges
QVC. QVC's goal is to become the preeminent global multimedia shopping community for people who love to shop, and
to offer a shopping experience that is as much about entertainment and enrichment as it is about buying. QVC's objective is
to provide an integrated shopping experience that utilizes all forms of media including television, the internet and mobile
devices. QVC intends to employ several strategies to achieve these goals and objectives. Among these strategies are to
(i) extend the breadth, relevance and exposure of the QVC brand; (ii) source products that represent unique quality and value;
(iii) create engaging presentation content in televised programming, mobile and online; (iv) leverage customer loyalty and
continue multi-platform expansion; and (v) create a compelling and differentiated customer experience. In addition, QVC
expects to expand globally by leveraging its existing systems, infrastructure and skills in other countries around the world.
QVC's future net revenue growth will primarily depend on sales growth from e-commerce and mobile platforms,
additions of new customers from households already receiving QVC's television programming, and increased spending from
existing customers. QVC's future net revenue may also be affected by (i) the willingness of cable television and direct-to-
home satellite system operators to continue carrying QVC's programming service; (ii) QVC's ability to maintain favorable
channel positioning, which may become more difficult due to governmental action or from distributors converting analog
customers to digital; (iii) changes in television viewing habits because of personal video recorders, video-on-demand and
internet video services; and (iv) general economic conditions.
The prolonged economic uncertainty in various regions of the world in which QVC’s subsidiaries and affiliates operate
could adversely affect demand for QVC’s products and services since a substantial portion of QVC’s revenue is derived from
discretionary spending by individuals, which typically falls during times of economic instability. Global financial markets
continue to experience disruptions, including increased volatility and diminished liquidity and credit availability. If economic
and financial market conditions in the United States (“U.S.”) or other key markets, including Japan and Europe, remain
uncertain, persist, or deteriorate further, QVC’s customers may respond by suspending, delaying, or reducing their
discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue.
Accordingly, QVC’s ability to increase or maintain revenue and earnings could be adversely affected to the extent that
relevant economic environments remain weak or decline. Such weak economic conditions may also inhibit QVC’s expansion
into new European and other markets. QVC is currently unable to predict the extent of any of these potential adverse effects.
On June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which British citizens approved an exit from the
European Union (the "EU"), commonly referred to as “Brexit.” As a result of the referendum, the global markets and
currencies have been adversely impacted, including a sharp decline in the value of the U.K. Pound Sterling as compared to
the U.S. Dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the
EU In the longer term, any impact from Brexit on QVC will depend, in part, on the outcome of tariff, trade, regulatory and
other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may
adversely affect QVC’s operations and financial results.
During his campaign in the 2016 U.S. presidential election, the current President of the U.S. expressed apprehension
towards existing trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership,
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and suggested that the U.S. would renegotiate or withdraw from these agreements. He also raised the possibility of
significantly increasing tariffs on goods imported into the United States, particularly from China and Mexico, which, if
implemented, could adversely affect our subsidiaries’ businesses because they sell imported products.
zulily. zulily’s objective is to be the leading online retail destination for moms. zulily’s goal is to be part of its customers’
daily routine, allowing them to visit zulily sites and discover a selection of fresh, new and affordable merchandise curated for
them every morning. zulily intends to employ the following strategies to achieve these goals and objectives (i) acquire new
customers; (ii) increase customer loyalty and repeat purchasing; (iii) add new vendors and strengthen existing vendor
relationships; and (iv) invest in mobile platform. In addition, zulily expects to invest in and develop international markets.
zulily has limited contractual assurances of continued supply, pricing or access to new products, and vendors could
change the terms upon which they sell to zulily or discontinue selling to zulily for future sales at any time. As zulily grows,
continuing to identify a sufficient number of new emerging brands and smaller boutique vendors may become more and more
of a challenge. If zulily is not able to identify and effectively promote these new brands, it may lose customers to
competitors. Even if zulily identifies new vendors, it may not be able to purchase desired merchandise in sufficient quantities
or on acceptable terms in the future, and products from alternative sources, if any, may be of a lesser quality or more
expensive than those from existing vendors. In addition, larger national brands may offer products that are less unique, and it
may be easier for zulily’s competitors to offer such products at prices or upon terms that may be compelling to consumers.
An inability to purchase suitable merchandise on acceptable terms or to source new vendors could have an adverse effect on
zulily’s business.
To support its large and diverse base of vendors and its flash sales model that requires constantly changing products,
zulily must incur costs related to its merchandising team, photography studios and creative personnel. As zulily grows, it may
not be able to continue to expand its product offerings in a cost-effective manner. In addition, the variety in size and
sophistication of zulily’s vendors presents different challenges to its infrastructure and operations. zulily’s emerging brands
and smaller boutique vendors may be less experienced in manufacturing and shipping, which in the past has led to
inconsistencies in quality, delays in the delivery of merchandise or additional fulfillment cost. zulily’s larger national brands
may impose additional requirements or offer less favorable terms than smaller vendors related to margins and inventory
ownership and risk and may also be unable to ship products timely. If zulily is unable to maintain and effectively manage its
relationships with emerging brands and smaller boutique vendors or larger national brands, zulily’s business could be
adversely affected.
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Results of Operations—Consolidated
General. We provide in the tables below information regarding our Consolidated Operating Results and Other Income
and Expense, as well as information regarding the contribution to those items from our principal reportable segments. The
"Corporate and other" category consists of those assets or businesses which we do not disclose separately, including our
Digital Commerce businesses, which are included in the QVC Group results through the date of reattribution and in the
Ventures Group thereafter. For a more detailed discussion and analysis of the financial results of the principal reporting
segment, see "Results of Operations - Businesses" below.
Operating Results
Revenue
QVC Group
QVC
zulily
Corporate and other
Inter-segment eliminations
Total QVC Group
Ventures Group
Corporate and other
Total Ventures Group
Consolidated Liberty
Operating Income (Loss)
QVC Group
QVC
zulily
Corporate and other
Total QVC Group
Ventures Group
Corporate and other
Total Ventures Group
Consolidated Liberty
Adjusted OIBDA
QVC Group
QVC
zulily
Corporate and other
Total QVC Group
Ventures Group
Corporate and other
Total Ventures Group
Consolidated Liberty
Years ended December 31,
2016
2015
2014
amounts in millions
$
8,682
1,547
—
(10)
10,219
8,743
426
—
—
8,801
NA
1,227
—
9,169 10,028
428
428
$ 10,647
820
820
471
471
9,989 10,499
$
$
$
$
1,203
(152)
(40)
1,011
(43)
(43)
968
1,840
112
(16)
1,936
3
3
1,939
1,275
(53)
(52)
1,170
(54)
(54)
1,116
1,894
21
(28)
1,887
59
59
1,946
1,279
NA
(73)
1,206
(18)
(18)
1,188
1,910
NA
29
1,939
26
26
1,965
Revenue. Our consolidated revenue increased 6.6% and decreased 4.9% for the years ended December 31, 2016 and
2015, respectively, as compared to the corresponding prior year periods. QVC’s revenue decreased $61 million and $58
million for the years ended December 31, 2016 and 2015, respectively, as compared to the corresponding prior year periods.
zulily’s revenue for the period October 1, 2015 (date of acquisition) through December 31, 2015 was $426 million. Corporate
and other revenue decreased $392 million for the year ended December 31, 2016, as compared to the
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corresponding prior year period due to the sale of Backcountry in June 2015 ($227 million), the disposition of Bodybuilding
in November 2016 as part of the Expedia Holdings Split-Off ($109 million) and the CommerceHub Spin-Off in July 2016
($38 million). Ignoring the reattribution, total Corporate and other revenue decreased $878 million for the year ended
December 31, 2015, as compared to the corresponding prior year period, primarily due to the sale of Provide in December
2014 ($666 million) and sale of Backcountry in June 2015 ($244 million), partially offset by an increase of $23 million at
CommerceHub and an increase of $8 million at Bodybuilding. CommerceHub’s revenue growth was driven by an
acquisition during the first quarter of 2015 and growth in active customers (vendors and suppliers), which increased the
number of aggregate transactions processed through the CommerceHub platform. The increase in Bodybuilding revenue for
the year ended December 31, 2015 was primarily due to increased order volume, driven by increased unique website visitors,
on slightly decreased average order values. See "Results of Operations - Businesses" below for a more complete discussion
of the results of operations of QVC and zulily.
Stock-based compensation. Stock-based compensation includes compensation related to (1) options and stock
appreciation rights for shares of our common stock that are granted to certain of our officers and employees, (2) phantom
stock appreciation rights granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and
(3) amortization of restricted stock grants.
We recorded $97 million, $127 million and $108 million of stock compensation expense for the years ended December
31, 2016, 2015 and 2014, respectively. The decrease of $30 million in stock-based compensation during 2016 was primarily
attributable to a $44 million decrease at CommerceHub due to a smaller change in company value and the CommerceHub
Spin-Off, partially offset by the acquisition of zulily ($14 million). The increase of $19 million in stock-based compensation
during 2015 was primarily attributable to an increase in stock-based compensation at a few subsidiaries due to the growth in
the fair value of those entities and due to options granted to zulily employees upon acquisition. As of December 31, 2016, the
total unrecognized compensation cost related to unvested Liberty equity awards was approximately $118 million. Such
amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.1
years.
Operating income (loss). Our consolidated operating income decreased $148 million and $72 million for the years
ended December 31, 2016 and 2015, respectively, as compared to the corresponding prior year periods. QVC’s operating
income decreased $72 million and was relatively flat for the years ended December 31, 2016 and 2015, respectively, as
compared to the corresponding prior year periods. zulily’s operating losses for the year ended December 31, 2016 were $152
million and for the period October 1, 2015 (date of acquisition) through December 31, 2015 were $53 million. Operating
losses for Corporate and other decreased $23 million for the year ended December 31, 2016, as compared to the
corresponding prior year period, primarily due to $22 million of decreases at CommerceHub. Ignoring the reattribution,
operating losses for Corporate and other increased $15 million for the year ended December 31, 2015, as compared to the
corresponding prior year period, primarily due to $28 million of decreases in operating income at CommerceHub, $7 million
of decreases at Backcountry, and $6 million of decreases at Bodybuilding, partially offset by improvements of $13 million at
Evite and $11 million at Provide. See "Results of Operations - Businesses" below for a more complete discussion of the
results of operations of QVC and zulily.
Adjusted OIBDA. We define Adjusted OIBDA as revenue less cost of sales, operating expenses and selling, general
and administrative ("SG&A") expenses (excluding stock compensation). Our chief operating decision maker and
management team use this measure of performance in conjunction with other measures to evaluate our businesses and make
decisions about allocating resources among our businesses. We believe this is an important indicator of the operational
strength and performance of our businesses, including each business's ability to service debt and fund capital expenditures. In
addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between
businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation
and amortization, stock-based compensation and restructuring and impairment charges that are included in the measurement
of operating income pursuant to generally accepted accounting policies (“GAAP”). Accordingly, Adjusted OIBDA should be
considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities
and other measures of financial performance prepared in accordance with GAAP. See note 19 to the accompanying
consolidated financial statements for a reconciliation of Adjusted OIBDA to operating income and earnings (loss) from
continuing operations before income taxes.
Consolidated Adjusted OIBDA decreased $7 million and decreased $19 million for the years ended December 31, 2016
and 2015, respectively, as compared to the corresponding prior year periods. QVC’s Adjusted OIBDA decreased
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$54 million and $16 million for the years ended December 31, 2016 and 2015, respectively, as compared to the
corresponding prior year periods. zulily’s Adjusted OIBDA for the year ended December 31, 2016 was $112 million and for
the period October 1, 2015 (date of acquisition) through December 31, 2015 was $21 million, excluding certain purchase
accounting adjustments. Corporate and other Adjusted OIBDA decreased $44 million for the year ended December 31, 2016,
as compared to the corresponding prior year period, primarily due to the CommerceHub Spin-Off in July 2016 ($28 million),
the sale of Backcountry in June 2015 ($8 million) and the disposition of Bodybuilding in November 2016 as part of the
Expedia Holdings Split-Off ($5 million). Ignoring the reattribution, total Corporate and other Adjusted OIBDA decreased
$24 million for the year ended December 31, 2015, as compared to the corresponding prior year period, primarily due to the
sale of Provide in December 2014 ($8 million) and the sale of Backcountry in June 2015 ($15 million). See "Results of
Operations - Businesses" below for a more complete discussion of the results of operations of QVC and zulily.
Other Income and Expense
Components of Other Income (Expense) are presented in the table below.
Interest expense
QVC Group
Ventures Group
Consolidated Liberty
Share of earnings (losses) of affiliate, net
QVC Group
Ventures Group
Consolidated Liberty
Realized and unrealized gains (losses) on financial instruments, net
QVC Group
Ventures Group
Consolidated Liberty
Gains (losses) on transactions, net
QVC Group
Ventures Group
Consolidated Liberty
Other, net
QVC Group
Ventures Group
Consolidated Liberty
Years ended December 31,
2016
2015 2014
amounts in millions
$
$
(289)
(74)
(363)
(283)
(77)
(360)
(312)
(75)
(387)
$
$
42
(110)
(68)
55
(233)
(178)
$
2
1,173
$ 1,175
$
$
$
$
—
9
9
42
89
131
42
72
114
—
110
110
(6)
20
14
51
(70)
(19)
(22)
(35)
(57)
—
74
74
(43)
19
(24)
Interest expense. Interest expense increased $3 million and decreased $27 million for the years ended December 31,
2016 and 2015, respectively, as compared to the corresponding prior year periods. The increase in interest expense for the
year ended December 31, 2016 is due to higher average debt balances at QVC, partially offset by lower interest rates under
QVC’s credit facility. The decrease in interest expense for the year ended December 31, 2015 is attributable to QVC’s
refinancing activities resulting in a lower average interest rate.
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Share of earnings (losses) of affiliates. The following table presents our share of earnings (losses) of affiliates:
QVC Group
HSN, Inc.
Other
Total QVC Group
Ventures Group
FTD
Other
Total Ventures Group
Consolidated Liberty
Years ended December 31,
2016
2015 2014
amounts in millions
$
48
(6)
42
64
(9)
55
(41)
(69)
(110)
(68)
(83)
(150)
(233)
(178)
$
60
(9)
51
—
(70)
(70)
(19)
On December 31, 2014, Liberty acquired an approximate 35% interest in FTD. Liberty’s share of FTD’s losses was $83
million for the year ended December 31, 2015. The carrying value of Liberty’s investment in FTD was impaired to the fair
value as of December 31, 2015. The Other category for the Ventures Group is comprised of investments in LendingTree,
alternative energy investments and other investments. The alternative energy investments generally operate at a loss but
provide favorable tax attributes recorded through the income tax (expense) benefit line item in the consolidated statements of
operations. During the year ended December 31, 2015, Liberty recorded an impairment of approximately $98 million related
to one of its alternative energy investments which has underperformed operationally.
Realized and unrealized gains (losses) on financial instruments. Realized and unrealized gains (losses) on financial
instruments are comprised of changes in the fair value of the following:
Fair Value Option Securities - AFS
Fair Value Option Securities - Liberty Broadband
Exchangeable senior debentures
Other financial instruments
Years ended December 31,
2016
2015 2014
$
amounts in millions
723
173
84
761 NA NA
(230)
30
(308)
—
—
(1)
(57)
$ 1,175 114
The changes in these accounts are due primarily to market factors and changes in the fair value of the underlying stocks
or financial instruments to which these relate. The increase for the year ended December 31, 2016 as compared to the
corresponding prior year period was primarily driven by the investment in Liberty Broadband, the investment in Charter, and
the change in Liberty’s ownership interest in Interval, which resulted in its classification as an available-for-sale security
rather than an equity method investment.
Gains on transactions, net. The gain on transactions, net, for the year ended December 31, 2016 is primarily the result
of the sale of Right Start in January 2016. The gain on transactions, net for the year ended December 31, 2015 primarily
relates to the sale of Backcountry on June 30, 2015, which resulted in a $105 million gain.
Other, net. The primary components of other, net are gains (losses) on dilution of investments in affiliates, foreign
exchange gains (losses) and interest income. Other, net increased $117 million for the year ended December 31, 2016 when
compared to the corresponding prior year period primarily due to a $75 million gain on dilution of investments in affiliates
and increases in foreign exchange gains.
Income taxes. Our effective tax rate for the years ended December 31, 2016, 2015 and 2014 was 32.3%, 22.7% and
30.6%, respectively. The effective tax rate is less than the U.S. federal tax rate of 35% during all years presented primarily
due to tax credits and incentives derived from our alternative energy investments. In addition, in 2015, Liberty recognized tax
benefits related to the receipt of taxable dividends that are subject to dividends received deductions. The effective tax
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rate during 2014 was further impacted by a change in the corporate effective state rate for outstanding deferred tax liabilities
and assets at Liberty due to a change in the apportionment of income to various states.
Net earnings. We had net earnings of $1,274 million, $911 million and $626 million for the years ended December 31,
2016, 2015 and 2014, respectively. The change in net earnings was the result of the above-described fluctuations in our
revenue, expenses and other gains and losses.
Liquidity and Capital Resources
As of December 31, 2016 substantially all of our cash and cash equivalents are invested in U.S. Treasury securities, other
government securities or government guaranteed funds, AAA rated money market funds and other highly rated financial and
corporate debt instruments.
The following are potential sources of liquidity: available cash balances, cash generated by the operating activities of our
wholly-owned subsidiaries (to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise
restricted), net proceeds from asset sales, monetization of our public investment portfolio, outstanding debt facilities, debt
and equity issuances, and dividend and interest receipts.
During the year, there were no changes to our corporate debt credit ratings or our consolidated subsidiaries' debt credit
ratings. Liberty and QVC are in compliance with their debt covenants as of December 31, 2016.
As of December 31, 2016, Liberty's liquidity position consisted of the following:
QVC
zulily
Corporate and other
Total QVC Group
Corporate and other
Total Ventures Group
Consolidated Liberty
Cash and cash Available-for-
sale securities
equivalents
amounts in millions
$
$
284
13
41
338
487
487
825
—
—
4
4
1,918
1,918
1,922
To the extent that the Company recognizes any taxable gains from the sale of assets, we may incur tax expense and be
required to make tax payments, thereby reducing any cash proceeds. Additionally, we have $744 million available for
borrowing under the QVC credit facility at December 31, 2016. As of December 31, 2016, QVC had approximately $159
million of cash and cash equivalents held in foreign subsidiaries. Cash in QVC foreign subsidiaries is generally accessible,
but certain tax consequences may reduce the net amount of cash QVC is able to utilize for U.S. purposes.
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Additionally, our operating businesses have generated, on average, more than $1 billion in annual cash provided by
operating activities over the prior three years and we do not anticipate any significant reductions in that amount in future
periods.
Cash Flow Information
QVC Group cash provided (used) by operating activities
Ventures Group cash provided (used) by operating activities
Net cash provided (used) by operating activities
QVC Group cash provided (used) by investing activities
Ventures Group cash provided (used) by investing activities
Net cash provided (used) by investing activities
QVC Group cash provided (used) by financing activities
Ventures Group cash provided (used) by financing activities
Net cash provided (used) by financing activities
QVC Group
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
$
$
$
$
1,273
170
1,443
(238)
(1,254)
(1,492)
(1,103)
(469)
(1,572)
1,005
57
1,062
(909)
121
(788)
(89)
(33)
(122)
1,224
424
1,648
(281)
(157)
(438)
(1,056)
969
(87)
During the year ended December 31, 2016, the QVC Group uses of cash were primarily the repayment of certain debt
obligations of $2,178 million and repurchase of Series A QVC Group common stock of $799 million. Additionally, the QVC
Group had approximately $206 million of capital expenditures during the year ended December 31, 2016. These uses of cash
were funded with $1,905 million of debt borrowings and cash provided by operating activities.
The projected uses of QVC Group cash are the cost to service outstanding debt, approximately $262 million in interest
payments on QVC and corporate level debt, anticipated capital improvement spending of approximately $227 million and the
continued buyback of QVC Group common stock under the approved share buyback program.
Ventures Group
During the year ended December 31, 2016, the Ventures Group uses of cash were primarily the $2.4 billion investment in
Liberty Broadband (see note 9 in the accompanying consolidated financial statements), the repayment of certain debt
obligations of $2,320 million and the purchase of short term investments and other marketable securities of $264 million.
These uses of cash for the Ventures Group were funded by the sale of short term investments and other marketable securities
of $1,162 million, debt borrowings of $1,572 million, cash proceeds from dispositions of $353 million, a distribution from
Expedia Holdings of $299 million, net of certain debt related costs, and cash provided by operating activities.
The projected uses of Ventures Group cash are approximately $59 million in interest payments to service outstanding
debt, anticipated capital improvement spending of approximately $3 million and further investments in existing or new
businesses through continued investment activity.
Consolidated
During the year ended December 31, 2016, Liberty's primary uses of cash were the $2.4 billion investment in Liberty
Broadband (see note 9 in the accompanying consolidated financial statements), $1,021 million of net repayments on
outstanding debt, repurchases of Series A QVC Group common stock of $799 million, purchases of short term investments
and other marketable securities of $264 million and capital expenditures of $233 million. These uses of cash were funded
primarily by sales of short term investments and other marketable securities of $1,174 million, cash proceeds from
dispositions of $353 million, a distribution from Expedia Holdings of $299 million and cash provided by operating activities.
The projected uses of Liberty’s cash, outside of normal operating expenses (inclusive of tax payments), are the costs to
service outstanding debt, approximately $321 million for interest payments on outstanding debt, corporate level and other
subsidiary debt, anticipated capital improvement spending of approximately $230 million, the repayment of certain debt
obligations and the potential buyback of common stock under the approved share buyback program and additional
investments in existing or new businesses. We also may be required to make net payments of income tax liabilities to settle
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items under discussion with tax authorities. We expect that cash on hand and cash provided by operating activities in future
periods and outstanding borrowing capacity will be sufficient to fund projected uses of cash.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In connection with agreements for the sale of assets by our company, we may retain liabilities that relate to events
occurring prior to the sale, such as tax, environmental, litigation and employment matters. We generally indemnify the
purchaser in the event that a third party asserts a claim against the purchaser that relates to a liability retained by us. These
types of indemnification obligations may extend for a number of years. We are unable to estimate the maximum potential
liability for these types of indemnification obligations as the sale agreements may not specify a maximum amount and the
amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be
determined at this time. Historically, we have not made any significant indemnification payments under such agreements and
no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification
obligations.
We have contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible we may incur losses upon conclusion of such matters, an estimate of any loss or
range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements.
Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our
contractual obligations, excluding uncertain tax positions as it is undeterminable when payments will be made, is
summarized below.
Consolidated contractual obligations
Long-term debt (1)
Interest payments (2)
Operating lease obligations
Build to suit lease
Purchase orders and other obligations
Total
Payments due by period
Less than
1 year
2 - 3 years 4 - 5 years
After
5 years
Total
amounts in millions
$ 8,371
5,853
255
96
451
$ 15,026
31
321
37
5
399
793
465
578
65
12
48
1,168
1,958
557
51
12
4
2,582
5,917
4,397
102
67
—
10,483
(1)Amounts are reflected in the table at the outstanding principal amount, assuming the debt instruments will remain
outstanding until the stated maturity date, and may differ from the amounts stated in our consolidated balance sheet to
the extent debt instruments (i) were issued at a discount or premium or (ii) have elements which are reported at fair
value in our consolidated balance sheets. Amounts also include capital lease obligations. Amounts do not assume
additional borrowings or refinancings of existing debt.
(2)Amounts (i) are based on our outstanding debt at December 31, 2016, (ii) assume the interest rates on our variable
rate debt remain constant at the December 31, 2016 rates and (iii) assume that our existing debt is repaid at maturity.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Listed below are the accounting estimates that we believe are critical to
our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude
of the asset, liability, revenue or expense being reported. All of these accounting estimates and assumptions,
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as well as the resulting impact to our financial statements, have been discussed with the audit committee of our board of
directors.
Fair Value Measurements
Financial Instruments. We record a number of assets and liabilities in our consolidated balance sheets at fair value on
a recurring basis, including available-for-sale ("AFS") securities, our investment in Liberty Broadband, financial instruments
and our exchangeable senior debentures. GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to
measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date. We use quoted market prices, or Level 1
inputs, to value our Fair Value Option (as defined below) securities and our investment in Liberty Broadband. As of
December 31, 2016 and 2015, the carrying value of our Fair Value Option securities was $1,846 million and $1,294 million,
respectively. As of December 31, 2016, the carrying value of our investment in Liberty Broadband was $3,161 million.
Level 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either
directly or indirectly. We use quoted market prices to determine the fair value of our exchangeable senior debentures.
However, these debentures are not traded on active markets as defined in GAAP, so these liabilities fall in Level 2. As of
December 31, 2016 and 2015, the principal amount and carrying value of our exchangeable debentures were $1,960 million
and $1,667 million, respectively.
Level 3 inputs are unobservable inputs for an asset or liability. We currently have no Level 3 financial instrument assets
or liabilities.
Non-Financial Instruments. Our non-financial instrument valuations are primarily comprised of our annual assessment
of the recoverability of our goodwill and other nonamortizable intangible assets, such as trademarks and our evaluation of the
recoverability of our other long-lived assets upon certain triggering events. If the carrying value of our long-lived assets
exceeds their undiscounted cash flows, we are required to write the carrying value down to fair value. Any such writedown is
included in impairment of long-lived assets in our consolidated statements of operations. A high degree of judgment is
required to estimate the fair value of our long-lived assets. We may use quoted market prices, prices for similar assets,
present value techniques and other valuation techniques to prepare these estimates. We may need to make estimates of future
cash flows and discount rates as well as other assumptions in order to implement these valuation techniques. Due to the high
degree of judgment involved in our estimation techniques, any value ultimately derived from our long-lived assets may differ
from our estimate of fair value. As each of our operating segments has long-lived assets, this critical accounting policy
affects the financial position and results of operations of each segment.
As of December 31, 2016, the intangible assets not subject to amortization for each of our significant reportable
segments were as follows:
QVC
zulily
Corporate and other
Goodwill
Trademarks
amounts in millions
Total
$ 5,110
917
25
$ 6,052
2,428 7,538
1,787
29
9,354
870
4
3,302
We perform our annual assessment of the recoverability of our goodwill and other non-amortizable intangible assets
during the fourth quarter of each year. We utilize a qualitative assessment for determining whether step one of the goodwill
impairment analysis is necessary. The accounting guidance permits entities to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment test. In evaluating goodwill on a qualitative
basis the Company reviews the business performance of each reporting unit and evaluates other relevant factors as identified
in the relevant accounting guidance to determine whether it is more likely than not that an indicated impairment exists for
any of our reporting units. The Company considers whether there are any negative macroeconomic
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conditions, industry specific conditions, market changes, increased competition, increased costs in doing business,
management challenges, the legal environments and how these factors might impact company specific performance in future
periods. As part of the analysis the Company also considers fair value determinations for certain reporting units that have
been made at various points throughout the current and prior years for other purposes. There were no goodwill and other
intangible impairments in 2016 and 2015. Continued declining operating results as compared to budgeted results and certain
trends required a Step 2 impairment test and a determination of fair value for Evite. Fair value for Evite, including intangible
assets and goodwill, was determined using the Evite’s projections of future operating performance and applying a
combination of market multiples and a discounted cash flow calculation (Level 3).
Carrying Value of Investments. We periodically evaluate our investments to determine if decreases in fair value
below our cost bases are other than temporary. If a decline in fair value is determined to be other than temporary, we are
required to reflect such decline in our consolidated statements of operations. Other than temporary declines in fair value of
our cost investments are recognized on a separate line in our consolidated statements of operations, and other than temporary
declines in fair value of our equity method investments are included in share of earnings (losses) of affiliates in our
consolidated statements of operations.
The primary factors we consider in our determination of whether declines in fair value are other than temporary are the
length of time that the fair value of the investment is below our carrying value; the severity of the decline; and the financial
condition, operating performance and near term prospects of the investee. In addition, we consider the reason for the decline
in fair value, be it general market conditions, industry specific or investee specific; analysts' ratings and estimates of
12 month share price targets for the investee; changes in stock price or valuation subsequent to the balance sheet date; and
our intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. Fair value of
our publicly traded cost and equity investments is based on the market prices of the investments at the balance sheet date. We
estimate the fair value of our other cost and equity investments using a variety of methodologies, including cash flow
multiples, discounted cash flow, per subscriber values, or values of comparable public or private businesses. Impairments are
calculated as the difference between our carrying value and our estimate of fair value. As our assessment of the fair value of
our investments and any resulting impairment losses and the timing of when to recognize such charges requires a high degree
of judgment and includes significant estimates and assumptions, actual results could differ materially from our estimates and
assumptions.
Our evaluation of the fair value of our investments and any resulting impairment charges are made as of the most recent
balance sheet date. Changes in fair value subsequent to the balance sheet date due to the factors described above are possible.
Subsequent decreases in fair value will be recognized in our consolidated statements of operations in the period in which they
occur to the extent such decreases are deemed to be other than temporary. Subsequent increases in fair value will be
recognized in our consolidated statements of operations only upon our ultimate disposition of the investment. During the year
ended December 31, 2015, Liberty recorded an impairment of approximately $98 million related to one of our alternative
energy investments which has underperformed operationally. In addition, during the year ended December 31, 2015, Liberty
recorded an impairment of our investment in FTD, as our carrying value per share was below the trading price for a
significant period of time.
Retail Related Adjustments and Allowances. QVC records adjustments and allowances for sales returns, inventory
obsolescence and uncollectible receivables. Each of these adjustments is estimated based on historical experience. Sales
returns are calculated as a percent of sales and are netted against revenue in our consolidated statements of operations. For
the years ended December 31, 2016, 2015 and 2014, sales returns represented 18.3%, 19.1% and 19.4% of QVC's gross
product revenue, respectively. The inventory obsolescence reserve is calculated as a percent of QVC's inventory at the end of
a reporting period based on, among other factors, the average inventory balance for the preceding 12 months and historical
experience with liquidated inventory. The change in the reserve is included in cost of retail sales in our consolidated
statements of operations. At December 31, 2016, QVC's inventory was $950 million, which was net of the obsolescence
adjustment of $76 million. QVC's allowance for doubtful accounts is calculated as a percent of accounts receivable at the end
of a reporting period, and the change in such allowance is recorded as bad debt expense in our consolidated statements of
operations. At December 31, 2016, QVC's trade accounts receivable were $1,246 million, net of the allowance for doubtful
accounts of $97 million. Each of these estimates requires management judgment and may not reflect actual results.
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Income Taxes. We are required to estimate the amount of tax payable or refundable for the current year and the
deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial
statements or tax returns for each taxing jurisdiction in which we operate. This process requires our management to make
judgments regarding the timing and probability of the ultimate tax impact of the various agreements and transactions that we
enter into. Based on these judgments we may record tax reserves or adjustments to valuation allowances on deferred tax
assets to reflect the expected realizability of future tax benefits. Actual income taxes could vary from these estimates due to
future changes in income tax law, significant changes in the jurisdictions in which we operate, our inability to generate
sufficient future taxable income or unpredicted results from the final determination of each year's liability by taxing
authorities. These changes could have a significant impact on our financial position.
Results of Operations—Businesses
QVC
QVC is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-
focused televised shopping programs, the Internet and mobile applications. In the U.S., QVC's live programming is
distributed via its nationally televised shopping program 24 hours per day, 364 days per year (such U.S. operations, “QVC-
U.S.”). Internationally, QVC's program services reach approximately 137 million households based in Germany, Austria, the
U.K., Republic of Ireland, Italy, Japan and France (such international operations, “QVC-International”). QVC-International
distributes programming live between eight and twenty-four hours per day, and an additional seven to fourteen hours per day
of recorded programming, depending on the market.
QVC’s Japanese operations are conducted through a joint venture with Mitsui & Co. LTD ("Mitsui") for a
television and multimedia retailing service in Japan. QVC-Japan is owned 60% by QVC and 40% by Mitsui. QVC
and Mitsui share in all profits and losses based on their respective ownership interests. During the years ended December 31,
2016, 2015 and 2014, QVC-Japan paid dividends to Mitsui of $39 million, $36 million and $42 million, respectively.
QVC also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited
liability company owned by China National Radio (''CNR''). QVC owns a 49% interest in a CNR subsidiary, CNR Home
Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an
associated website. Live programming is distributed for 15 hours per day and recorded programming for nine hours per day.
The CNRS joint venture is accounted for as an equity method investment.
During the year ended December 31, 2015, QVC put into action the One Q reorganization plan which reorganized its
department reporting structure. The purpose of the plan is to reorganize the reporting structure for a shared services
arrangement to support the U.S. and international operations.
QVC's operating results were as follows:
Net revenue
Cost of sales
Gross profit
Operating expenses
SG&A expenses (excluding stock-based compensation)
Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Operating income
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
8,682
(5,540)
3,142
(606)
(696)
1,840
(32)
(605)
1,203
8,743
(5,528)
3,215
(607)
(714)
1,894
(31)
(588)
1,275
8,801
(5,547)
3,254
(618)
(726)
1,910
(44)
(587)
1,279
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Net revenue was generated from the following geographical areas:
QVC-U.S.
QVC-International
Years ended December 31,
2015
2016
2014
amounts in millions
$ 6,120
2,562
$ 8,682
6,257
2,486
8,743
6,055
2,746
8,801
QVC's consolidated net revenue decreased 0.7% for each of the years ended December 31, 2016 and 2015, respectively,
as compared to the corresponding prior years. The 2016 decrease of $61 million in net revenue was primarily due to a 3.9%
decrease in average selling price per unit ("ASP") attributing $393 million and a $17 million decrease in shipping and
handling revenue in constant currency. The decrease was offset by a 2.4% increase in units shipped attributing $237 million,
a decrease of $105 million in estimated product returns and a $6 million increase primarily related to product sales with
zulily. The 2015 decrease of $58 million in net revenue was primarily comprised of $357 million of unfavorable foreign
currency rate adjustments, a decrease in net shipping and handling revenue of $81 million in the U.S., a $74 million increase
in estimated product returns, and a $15 million decrease in other revenue primarily in the U.S. These decreases were offset by
$330 million due to a 3.4% increase in units sold both in the U.S. and internationally and $139 million due to a 1.4% increase
in the consolidated ASP. The increase in estimated product returns was primarily in the U.S. and Germany due to sales mixes
and an increase in units shipped. As expected, shipping and handling revenue decreased in the U.S. as a result of QVC's new
shipping and handling pricing which became effective February 2, 2015, that provides for changes in standard shipping rates
and a change in QVC's shipping and handling refund policy.
During the years ended December 31, 2016 and 2015, the changes in revenue and expenses were affected by changes in
the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. In the event the U.S. Dollar strengthens
against these foreign currencies in the future, QVC's revenue and operating cash flow will be negatively affected.
In discussing QVC’s operating results, the term currency exchange rates refers to the currency exchange rates QVC
uses to convert the operating results for all countries where the functional currency is not the U.S. dollar. QVC calculates the
effect of changes in currency exchange rates as the difference between current period activity translated using the prior
period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of
currency exchange rate fluctuations. When we refer to constant currency operating results, this means operating results
without the impact of the currency exchange rate fluctuations. The disclosure of constant currency amounts or results permits
investors to understand better QVC’s underlying performance without the effects of currency exchange rate fluctuations.
The percentage change in net revenue for QVC-U.S. and QVC-International in U.S. Dollars and in constant currency
was as follows:
Year ended December 31, 2016
Year ended December 31, 2015
QVC-US
QVC-International
U.S. dollars
(2.2)%
3.1 %
Foreign
Currency
Exchange
Impact
Constant currency
(2.2)%
3.0 %
0.0 %
0.1 %
U.S. dollars
3.3 %
(9.5)%
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Foreign
Currency
Exchange
Impact
Constant currency
3.3 %
3.5 %
0.0 %
(13.0)%
Table of Contents
In 2016, QVC-U.S. net revenue decline was primarily due to a 5.5% decrease in ASP and a 4.0% decrease in shipping
and handling revenue. The decline was offset by a 2.3% increase in units shipped and a decrease in estimated product returns.
QVC-U.S. experienced shipped sales declines in jewelry, electronics and beauty with growth in apparel, home and
accessories. The decrease in net shipping and handling revenue was primarily due to the decrease in shipping and handling
rates per unit from promotional offers. The decrease in estimated product returns was primarily due to a decrease in an
overall lower return rate across all categories and sales. QVC-International net revenue growth in constant currency was
primarily due to a 2.5% increase in units shipped, driven mainly in Germany and the U.K., offset by the increase in estimated
product returns, driven primarily by product returns in Germany. QVC-International experienced shipped sales growth in
constant currency in all categories except jewelry and apparel.
In 2015, QVC-U.S. net revenue growth was primarily due to 4.0% increase in units shipped and a 1.2% increase in ASP
offset by the increase in estimated product returns and lower shipping and handling revenue. QVC-U.S. experienced shipped
sales growth in all categories except jewelry and electronics. QVC-International net revenue growth in constant currency was
primarily due to a 2.2% increase in units shipped, primarily in the U.K., and a 1.6% increase in ASP, mainly in Germany,
offset by the increase in estimated product returns. QVC-International experienced shipped sales growth in constant currency
in all categories except electronics.
QVC's gross profit percentage was 36.2%, 36.8% and 37.0% for the years ended December 31, 2016, 2015 and
2014, respectively. The slight decrease in gross profit percentage in 2016 was primarily due to decreased product margins and
increased freight costs in the U.S. associated with the increases in units shipped, partially offset by a favorable inventory
obsolescence provision in the U.S. The slight decrease in gross profit percentage in 2015 was primarily due to increased
inventory obsolescence and freight costs in the U.S partially offset by increased product margins in the U.S. and
internationally.
QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses,
credit card processing fees, and telecommunications expenses. Operating expenses decreased $1 million or 0.2% and
decreased $11 million or 1.8% for the years ended December 31, 2016 and 2015, respectively.
The slight decrease in 2016 was primarily due to lower telecommunication expense, partially offset by increased
commissions expense. The decrease in telecommunication expense was primarily due to lower phone and network rates in
the U.S. The increase in commissions expense was primarily due to increases internationally offset by a decrease in sales in
the U.S.
The decrease in 2015 was primarily due to favorable foreign currency exchange rates of $29 million, partially offset by
a $9 million increase in commissions expenses and an $8 million increase in credit card fees. The increase in commission
expense was primarily due to increased sales in the U.S. The increase in credit card fees was primarily due to increased sales
combined with a higher mix of purchases from customers using credit cards with higher rates charged to merchants, primarily
in the U.S.
Stock-based compensation includes compensation related to options and restricted stock granted to certain officers
and employees. QVC recorded $32 million, $31 million and $44 million of stock-based compensation expense for the years
ended December 31, 2016, 2015 and 2014, respectively. Stock-based compensation decreased in 2015 due to the
acceleration of vesting of certain awards in 2014.
QVC's SG&A expenses (excluding stock compensation) include personnel, information technology, provision for
doubtful accounts, credit card income, production costs and marketing and advertising expense. Such expenses decreased $18
million, and decreased to 8% of net revenue for the year ended December 31, 2016 as compared to the prior year and
decreased $12 million, and remained consistent at 8.2% of net revenue for the year ended December 31, 2015 as compared to
the prior year, as a result of a variety of factors.
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The decrease in 2016 was primarily related to reduced personnel costs of $63 million and an increase of credit card
income of $8 million which was partially offset by increases in bad debt expense of $25 million, software expense of $13
million, franchise tax expense of $10 million and external services of $8 million. The decrease in personnel costs was
primarily due to a decrease in bonuses and benefits in the U.S., and severance. The increase in credit card income was due to
the favorable economics and usage of the QVC-branded credit card (“Q card”) portfolio in the U.S. The increase in bad debt
expense was primarily related to an increase in U.S. Easy-Pay sales penetration and default rates. The increase in software
expense was mainly due to an increase in software licensing and software maintenance. The increase in franchise tax expense
was mainly due to a favorable franchise tax reserve adjustment related to an audit settlement in 2015 which was not
experienced in the year ended December 31, 2016. The increase in external services was primarily due to internal control
enhancements and the establishment of a global business service center located in Krakow, Poland.
The decrease in 2015 was primarily related to a $48 million favorable impact of exchange rates, a $12 million increase
in credit card income, and a $10 million decrease in bad debt expense, partially offset by a $53 million increase in personnel
expense. The increase in credit card income was due to the favorable economics of the Q card portfolio in the U.S. The
decrease in bad debt expense was mainly due to a lower electronics Easy-Pay mix, higher usage of the Q Card in the U.S. and
lower write-offs in Germany. The increase in personnel expenses was primarily due to severance costs related to the
establishment of the global business service center and One Q reorganization plan, and also due to merit, bonus and benefits
increases in the U.S. and internationally, including the start-up in France.
Depreciation and amortization consisted of the following:
Affiliate agreements
Customer relationships
Acquisition related amortization
Property and equipment
Software amortization
Channel placement amortization and related expenses
Total depreciation and amortization
Years ended December 31,
2016
2015
2014
$
$
amounts in millions
146
170
316
134
93
45
588
146
169
315
142
100
48
605
150
173
323
135
93
36
587
For the year ended December 31, 2016, depreciation and amortization increased primarily due to additions at QVC’s
California distribution center and new website functionality.
zulily.
Liberty acquired zulily on October 1, 2015. Prior to the acquisition, zulily utilized a retail calendar, whereby each fiscal
year ended on the Sunday closest to December 31. Upon acquisition by Liberty, zulily changed its year end to December 31
on a prospective basis, resulting in four additional days in the year ended December 31, 2015 as compared to the year ended
December 28, 2014. The change in fiscal year end also resulted in two fewer days in the year ended December 31, 2016
compared to the year ended December 31, 2015. Although zulily’s results are only included in Liberty’s results for the period
October 1, 2015 through December 31, 2015, we believe a discussion of zulily’s stand alone results, including certain one-
time purchase accounting related adjustments detailed below, promotes a better understanding of the overall results of its
business. zulily has reclassified certain costs between financial statement line
II-22
Table of Contents
items to conform with Liberty’s reporting structure for ease of comparability for all reporting periods. zulily's operating
results for the last three years were as follows:
December 31,
2016
Years ended
December
31,
2015
amounts in millions
Net revenue
Cost of sales
Gross profit
Operating expenses
SG&A expenses (excluding stock-based compensation and acquisition related
expenses)
Adjusted OIBDA
Acquisition related expenses
Stock-based compensation
Depreciation and amortization
Deferred revenue adjustment
Operating income (loss)
$
$
1,547
(1,108)
439
(47)
(280)
112
—
(19)
(245)
—
(152)
1,361
(978)
383
(43)
(269)
71
(30)
(19)
(83)
(17)
(78)
December
28,
2014
1,201
(894)
307
(40)
(223)
44
—
(15)
(13)
—
16
Net revenue consists primarily of sales of women's, children's and men's apparel, children's merchandise and other
product categories such as kitchen accessories and home décor. zulily recognizes product sales at the time all revenue
recognition criteria has been met, which is generally at delivery. Net revenue represents the sales of these items plus shipping
and handling charges to customers, net of estimated refunds, store credits, and promotional discounts. Net revenue is
primarily driven by growth in zulily’s active customers, the frequency with which customers purchase and average order
value.
zulily's consolidated net revenue increased 13.7% and 13.3% for the years ended December 31, 2016 and December 31,
2015, respectively, as compared to the corresponding prior years. The increase in net revenue for the year ended December
31, 2016 was primarily attributed to an increase in total orders placed of 14.5%, driven by a 14.1% increase in the number of
orders placed per active customer. An active customer is defined as an individual who had purchased at least once in the last
twelve months, measured from the last day of the period. The increase in net revenue for the year ended December 31, 2015
was primarily attributed to an 11.6% increase in total orders placed driven by a 9.9% increase in the number of orders placed
per active customer.
zulily's gross profit percentage was 28.4%, 28.1% and 25.6% for the years ended December 31, 2016, 2015 and
December 28, 2014, respectively. The increase for the year ended December 31, 2016 was primarily attributed to improved
operational efficiency, partially offset by higher shipping and handling costs. The increase in gross profit for the year ended
December 31, 2015 was primarily attributed to improved operational performance driven by investments in transportation
and fulfillment center automation.
zulily’s operating expenses are principally comprised of credit card processing fees and customer service
expenses. Operating expenses increased $4 million, or 9.3%, and $3 million, or 7.5%, for the years ended December 31,
2016 and 2015, respectively. The increase in operating expenses was primarily attributed to an increase in credit card
processing fees which are driven by higher sales volume.
zulily’s SG&A expenses include personnel related costs for general corporate functions, marketing and advertising
expenses, information technology, and the costs associated with the use by these functions of facilities and equipment,
including rent. These expenses increased $11 million, and as a percentage of net revenue, decreased from 19.8% to 18.1% for
the year ended December 31, 2016. The SG&A expense increase was primarily due to an increase in overall marketing
spend. The decrease in expense as a percentage of net revenue was driven by top line revenue growth over a partially fixed
cost base.
zulily’s SG&A expenses increased $46 million, and as a percentage of revenue increased from 18.6% to 19.8% for the
year ended December 31, 2015. The increase in SG&A expenses as compared to the year ended December 28, 2014
II-23
Table of Contents
was attributable to higher personnel related costs, increased rent and facilities expenses as a result of an increase in square
footage occupied in order to support its business growth, and higher marketing-related expenses attributable to increased
subscriber acquisition costs as zulily realigned its marketing strategy to focus on higher lifetime value customers.
zulily’s stock-based compensation expense remained flat for the year ended December 31, 2016 as compared to the year
ended December 31, 2015. zulily’s stock-based compensation expense increased $4 million, or 26.7%, for the year ended
December 31, 2015. The increase in stock-based compensation expense was the result of incremental increases in headcount
during the year ended December 31, 2015 as compared to the year ended December 28, 2014.
zulily’s depreciation and amortization expense increased $162 million and $70 million for the years ended December
31, 2016 and 2015, respectively, as compared to the corresponding prior years. The increase is primarily attributed to
amortization of intangible assets as a result of purchase accounting. To a lesser extent, the increase in depreciation and
amortization was related to additional automation equipment and leasehold improvements in its fulfillment centers.
zulily’s results for the year ended December 31, 2015, including certain one-time purchase accounting related
adjustments, were as follows (amounts in millions):
Post-Acquisition:
October 1, 2015 -
December 31,
2015
Deferred Revenue
Adjustment
Pre-
Acquisition:
December 29,
2014 -
September 30,
2015
Net revenue
Cost of sales
Gross profit
Operating expenses
SG&A expenses (excluding stock-based
compensation and acquisition related
expenses)
Adjusted OIBDA
Acquisition related expenses
Stock-based compensation
Depreciation and amortization
Deferred revenue adjustment
Operating income (loss)
$
$
426
(318)
108
(13)
(74)
21
—
(5)
(69)
—
(53)
17
—
17
—
—
17
—
—
—
(17)
—
918
(660)
258
(30)
(195)
33
(30)
(14)
(14)
—
(25)
2015 Total
1,361
(978)
383
(43)
(269)
71
(30)
(19)
(83)
(17)
(78)
The results of operations for the year ended December 31, 2015 include approximately $30 million in costs associated
with the closing of the acquisition. The results of operations for the period October 1, 2015 through December 31, 2015
include approximately $63 million of depreciation and amortization as a result of purchase accounting related to new
intangible assets and to a lesser extent stepped up valuation on assets existing prior to the date of the acquisition.
Additionally, as a result of our application of purchase accounting, zulily’s deferred revenue was adjusted to fair value, based
on a broader market margin, instead of a company specific margin. This adjustment had the one-time impact of lowering
revenue and Adjusted OIBDA in the post-acquisition period.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities and
the conduct of operations by our subsidiaries in different foreign countries. Market risk refers to the risk of loss arising from
adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the
perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and
internal processes governing our management of market risks and the use of financial instruments to manage our exposure to
such risks.
II-24
Table of Contents
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which
include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund
business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future
requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe
is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We have
achieved this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity,
(ii) issuing variable rate debt with appropriate maturities and interest rates and (iii) entering into interest rate swap
arrangements when we deem appropriate. As of December 31, 2016, our debt is comprised of the following amounts:
QVC Group
QVC
zulily
Corporate and other
Ventures Group
Corporate and other
Variable rate debt
Fixed rate debt
Principal
amount
Weighted avg Principal
amount
interest rate
Weighted avg
interest rate
dollar amounts in millions
$ 1,596
300
$
—
$
2.2 % $ 3,724
—
2.2 % $
792
— % $
4.6 %
— %
8.3 %
$
—
— % $ 1,959
3.0 %
We are exposed to changes in stock prices primarily as a result of our significant holdings in publicly traded securities.
We continually monitor changes in stock markets, in general, and changes in the stock prices of our holdings, specifically. We
believe that changes in stock prices can be expected to vary as a result of general market conditions, technological changes,
specific industry changes and other factors. We periodically use equity collars and other financial instruments to manage
market risk associated with certain investment positions. These instruments, when utilized, are recorded at fair value based
on option pricing models.
At December 31, 2016, the fair value of our AFS securities was $1,846 million. Had the market price of such securities
been 10% lower at December 31, 2016, the aggregate value of such securities would have been $185 million lower. Our
investments in HSN, FTD and LendingTree are publicly traded securities and are accounted for as equity method affiliates,
which are not reflected at fair value in our balance sheets. The aggregate fair value of such securities was $1,211 million at
December 31, 2016 and had the market price of such securities been 10% lower at December 31, 2016, the aggregate value
of such securities would have been $121 million lower. These securities are also subject to market risk that is not directly
reflected in our statements of operations. At December 31, 2016, the fair value of our investment in Liberty Broadband was
$3,161 million. Had the market price of such security been 10% lower at December 31, 2016, the fair value of such security
would have been $316 million lower. Additionally, our exchangeable senior debentures are also subject to market risk.
Because we mark these instruments to fair value each reporting date, increases in the price of the respective underlying
security generally result in higher liabilities and unrealized losses in our statements of operations.
Liberty is exposed to foreign exchange rate fluctuations related primarily to the monetary assets and liabilities and the
financial results of QVC's foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency
is the local currency are translated into U.S. dollars at period-end exchange rates, and the statements of operations are
generally translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency
financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss) as a separate
component of stockholders' equity. Transactions denominated in currencies other than the functional currency are recorded
based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains
and losses, which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the
transactions. Cash flows from our operations in foreign countries are translated at the average rate for the period.
Accordingly, Liberty may experience economic loss and a negative impact on earnings and equity with respect to our
holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the year
ended December 31, 2016 would have been impacted by approximately $4 million for every 1% change in foreign currency
exchange rates relative to the U.S. Dollar.
II-25
Table of Contents
We periodically assess the effectiveness of our derivative financial instruments. With regard to interest rate swaps, we
monitor the fair value of interest rate swaps as well as the effective interest rate the interest rate swap yields, in comparison to
historical interest rate trends. We believe that any losses incurred with regard to interest rate swaps would be largely offset by
the effects of interest rate movements on the underlying debt facilities. These measures allow our management to evaluate the
success of our use of derivative instruments and to determine when to enter into or exit from derivative instruments.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of Liberty are filed under this Item, beginning on page II-30. The financial
statement schedules required by Regulation S-X are filed under Item 15 of this Annual Report on Form 10‑K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Company carried out an evaluation, under the supervision and with the participation of management, including its
chief executive officer and its principal accounting and financial officer (the “Executives”), of the effectiveness of its
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the
Executives concluded that the Company's disclosure controls and procedures were effective as of December 31, 2016 to
provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
See page II-28 for Management's Report on Internal Control Over Financial Reporting.
See page II-29 for KPMG LLP’s attestation report regarding the effectiveness of our internal control over financial
reporting.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
See “Item 9A. Controls and Procedures - Management’s Report on Internal Control Over Financial Reporting” and “Item
9A. Controls and Procedures - Remediation Plan For Material Weakness in Internal Control Over Financial Reporting”
contained in the Company’s report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 Form 10-K”) for
disclosure of information about the material weakness that was reported as a result of the Company’s annual assessment as of
December 31, 2015 and remediation plans for that material weakness.
In response to the material weakness identified in Management’s Report on Internal Control Over Financial Reporting as
set forth in Part II, Item 9A in the 2015 Form 10-K, the Company developed a plan with oversight from the Audit Committee
of the Board of Directors of Liberty to remediate the material weakness. The remediation efforts implemented include the
following:
· A monitoring control was established to identify inappropriate user access and incompatible or conflicting
functions. The work of the identified individuals, with such duties, was then reviewed to determine whether they
inappropriately utilized the incompatible or conflicting functions to perform any inappropriate activity.
· Monitoring controls over manual and post-close journal entries were enhanced to ensure that there is adequate
oversight over such entries.
II-26
Table of Contents
· Additionally, procedures were established to validate the completeness and accuracy of reports used in the financial
reporting process to support control activities.
For the quarter ended December 31, 2016 the Company completed the testing and evaluation of the operating
effectiveness of the controls, and based on the results of the testing, the controls were determined to be designed and
operating effectively as of December 31, 2016. Accordingly, the Company concluded the previously reported material
weakness was remediated as of December 31, 2016.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2016, the Company continued to review the design of QVC’s controls, made adjustments
and continued to alleviate the noted control deficiencies. Other than these items, there was no change in the Company’s
internal control over financial reporting that occurred during the Company’s quarter ended December 31, 2016 that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
II-27
Table of Contents
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Liberty Interactive Corporation’s (the “Company”) management is responsible for establishing and maintaining adequate
internal control over the Company’s financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange
Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. Because of inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
The Company's management assessed the effectiveness of internal control over financial reporting as of December 31,
2016, using the criteria in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation the Company's management believes that, as of
December 31, 2016, its internal control over financial reporting is effective.
The Company's independent registered public accounting firm that audited the consolidated financial statements and
related disclosures in the Annual Report on Form 10-K has issued an audit report on the effectiveness of the Company's
internal control over financial reporting. This report appears on page II-29 of this Annual Report on Form 10-K.
II-28
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Liberty Interactive Corporation:
We have audited Liberty Interactive Corporation’s (the Company) internal control over financial reporting as of December
31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Liberty Interactive Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Liberty Interactive Corporation as of December 31, 2016 and 2015, and the related
consolidated statements of operations, comprehensive earnings (loss), cash flows, and equity for each of the years in the
three-year period ended December 31, 2016, and our report dated February 28, 2017 expressed an unqualified opinion on
those consolidated financial statements.
Denver, Colorado
February 28, 2017
/s/ KPMG LLP
II-29
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Liberty Interactive Corporation:
We have audited the accompanying consolidated balance sheets of Liberty Interactive Corporation and subsidiaries (the
Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive earnings
(loss), cash flows, and equity, for each of the years in the three‑year period ended December 31, 2016. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Liberty Interactive Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of
their operations and their cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 28, 2017, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Denver, Colorado
February 28, 2017
/s/ KPMG LLP
II-30
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables, net
Inventory, net
Short-term marketable securities
Other current assets
Total current assets
Investments in available-for-sale securities and other cost investments (note 8)
Investments in affiliates, accounted for using the equity method (note 9)
Investment in Liberty Broadband measured at fair value (note 9)
Property and equipment, at cost
Accumulated depreciation
Intangible assets not subject to amortization (note 10):
Goodwill
Trademarks
Intangible assets subject to amortization, net (note 10)
Other assets, at cost, net of accumulated amortization
Noncurrent assets of discontinued operations (note 6)
Total assets
II-31
2016
2015
amounts in millions
$
825
1,308
968
—
68
3,169
1,922
581
3,161
2,163
(1,032)
1,131
6,052
3,302
9,354
1,005
32
—
$ 20,355
2,449
1,443
1,000
910
73
5,875
1,353
714
—
2,124
(984)
1,140
6,112
3,373
9,485
1,647
39
927
21,180
(continued)
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2016 and 2015
Liabilities and Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of debt, including $862 million and $1,193 million measured at fair value
(note 11)
Other current liabilities
Total current liabilities
Long-term debt, including $805 million and $1,287 million measured at fair value (note 11)
Deferred income tax liabilities (note 12)
Other liabilities
Noncurrent liabilities of discontinued operations (note 6)
Total liabilities
Equity
Stockholders' equity (note 13):
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued
Series A QVC Group common stock, $.01 par value. Authorized 4,000,000,000 shares; issued
and outstanding 429,005,932 shares at December 31, 2016 and 461,379,963 shares at December
31, 2015
Series B QVC Group common stock, $.01 par value. Authorized 150,000,000 shares; issued and
outstanding 29,358,638 shares at December 31, 2016 and 29,218,527 shares at December 31,
2015
Series A Liberty Ventures common stock, $.01 par value. Authorized 400,000,000 shares at
December 31, 2016 and December 31, 2015; issued and outstanding 81,150,711 shares at
December 31, 2016 and 134,961,466 shares at December 31, 2015
Series B Liberty Ventures common stock, $.01 par value. Authorized 15,000,000 shares at
December 31, 2016 and December 31, 2015; issued and outstanding 4,271,958 shares at
December 31, 2016 and 7,092,111 shares at December 31, 2015
Additional paid-in capital
Accumulated other comprehensive earnings (loss), net of taxes
Retained earnings
Total stockholders' equity
Noncontrolling interests in equity of subsidiaries
Total equity
Commitments and contingencies (note 18)
Total liabilities and equity
2016
2015
amounts in millions
$
790
706
762
784
876
162
2,534
7,166
3,636
158
—
13,494
1,226
328
3,100
7,481
3,217
222
285
14,305
—
—
5
5
—
—
1
1
—
—
(266)
7,032
6,772
89
6,861
—
370
(215)
6,626
6,787
88
6,875
$ 20,355
21,180
See accompanying notes to consolidated financial statements.
II-32
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Operations
Years ended December 31, 2016, 2015 and 2014
2016
2015
amounts in millions,
except per share amounts
2014
$ 10,647
9,989
10,499
6,908
707
1,190
874
9,679
968
(363)
(68)
1,175
9
131
884
1,852
(598)
1,254
20
1,274
39
1,235
473
762
1,235
6,393
699
1,078
703
8,873
1,116
(360)
(178)
114
110
14
(300)
816
(185)
631
280
911
42
869
640
229
869
0.99
5.54
1.35
(0.36)
0.98
5.49
0.99
5.69
0.98
5.64
1.33
(0.36)
1.35
1.61
1.33
1.60
$
$
$
$
$
$
$
$
$
$
6,684
756
1,202
669
9,311
1,188
(387)
(19)
(57)
74
(24)
(413)
775
(237)
538
88
626
89
537
520
17
537
1.10
(0.43)
1.09
(0.43)
1.07
0.19
1.06
0.19
Total revenue, net
Operating costs and expenses:
Cost of retail sales (exclusive of depreciation shown separately below)
Operating expense
Selling, general and administrative, including stock-based compensation (note 3)
Depreciation and amortization
Operating income
Other income (expense):
Interest expense
Share of earnings (losses) of affiliates, net (note 9)
Realized and unrealized gains (losses) on financial instruments, net (note 7)
Gains (losses) on transactions, net
Other, net
Earnings (loss) from continuing operations before income taxes
Income tax (expense) benefit (note 12)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of taxes (note 6)
Net earnings (loss)
Less net earnings (loss) attributable to the noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock
Liberty Ventures common stock
Basic net earnings (loss) from continuing operations attributable to Liberty Interactive Corporation shareholders
per common share (note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) from continuing operations attributable to Liberty Interactive Corporation
shareholders per common share (note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) attributable to Liberty Interactive Corporation shareholders per common share (note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) attributable to Liberty Interactive Corporation shareholders per common share
(note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
See accompanying notes to consolidated financial statements.
II-33
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Comprehensive Earnings (Loss)
Years ended December 31, 2016, 2015 and 2014
Net earnings (loss)
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments
Share of other comprehensive earnings (loss) of equity affiliates
Other comprehensive earnings (loss) from discontinued operations
Other
Other comprehensive earnings (loss)
Comprehensive earnings (loss)
Less comprehensive earnings (loss) attributable to the noncontrolling interests
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock
Liberty Ventures common stock
2016
2015
2014
amounts in millions
$ 1,274
911
626
(84)
(5)
(2)
6
(85)
1,189
40
$ 1,149
$
388
761
$ 1,149
(101)
(4)
(17)
—
(122)
789
41
748
540
208
748
(192)
—
(19)
—
(211)
415
77
338
336
2
338
See accompanying notes to consolidated financial statements.
II-34
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
Years ended December 31, 2016, 2015 and 2014
2016
2015
2014
amounts in millions
(See note 4)
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings to net cash provided by operating activities:
$
1,274
(Earnings) loss from discontinued operations
Depreciation and amortization
Stock-based compensation
Cash payments for stock-based compensation
Noncash interest expense
Share of (earnings) losses of affiliates, net
Cash receipts from returns on equity investments
Realized and unrealized (gains) losses on financial instruments, net
(Gains) losses on transactions, net
(Gains) losses on extinguishment of debt
Deferred income tax expense (benefit)
Other noncash charges (credits), net
Changes in operating assets and liabilities
Current and other assets
Payables and other liabilities
Net cash provided (used) by operating activities
Cash flows from investing activities:
Cash (paid) for acquisitions, net of cash acquired
Cash proceeds from dispositions of investments
Investment in and loans to cost and equity investees
Cash receipts from returns of equity investments
Capital expended for property and equipment
Purchases of short term investments and other marketable securities
Sales of short term investments and other marketable securities
Investment in Liberty Broadband
Other investing activities, net
Net cash provided (used) by investing activities
Cash flows from financing activities:
Borrowings of debt
Repayments of debt
Repurchases of QVC Group common stock
Withholding taxes on net share settlements of stock-based compensation
Purchase of noncontrolling interest
Distribution from Liberty Expedia Holdings
Other financing activities, net
Net cash provided (used) by financing activities
Effect of foreign currency exchange rates on cash
Net cash provided (used) by discontinued operations:
Cash provided (used) by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
Change in available cash held by discontinued operations
Net cash provided (used) by discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(20)
874
97
(92)
12
68
31
(1,175)
(9)
6
473
(115)
136
(117)
1,443
—
353
(86)
—
(233)
(264)
1,174
(2,400)
(36)
(1,492)
3,427
(4,498)
(799)
(16)
—
299
15
(1,572)
(20)
17
—
—
—
17
(1,624)
2,449
825
$
911
(280)
703
127
(16)
5
178
32
(114)
(110)
21
(103)
(11)
(237)
(44)
1,062
(844)
271
(120)
250
(258)
(1,370)
1,359
—
(76)
(788)
4,558
(3,811)
(785)
(30)
(33)
—
(21)
(122)
(3)
17
(23)
—
—
(6)
143
2,306
2,449
626
(88)
669
108
(15)
6
19
30
57
(74)
48
(60)
1
(84)
405
1,648
—
163
(71)
—
(241)
(864)
591
—
(16)
(438)
4,506
(3,749)
(785)
(26)
—
—
(33)
(87)
(46)
286
(214)
371
(116)
327
1,404
902
2,306
See accompanying notes to consolidated financial statements.
II-35
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Equity
Years ended December 31, 2016, 2015 and 2014
Stockholders' Equity
QVC
Group
Liberty
Ventures
Additional
Preferred
Stock
Series A Series B Series A Series B
paid-in
capital
Accumulated
other
comprehensive
earnings
(loss),
net of taxes
Retained
Earnings
Noncontrolling
interest in
Balance at January 1, 2014
Net earnings
Other comprehensive earnings (loss)
Stock-based compensation
Minimum withholding taxes on net share settlements of stock-based compensation
Excess tax benefits on stock-based compensation
Stock issued upon exercise of stock options
Series A QVC Group stock repurchases
Distribution to noncontrolling interest
Shares issued by subsidiary
Distribution of Liberty TripAdvisor Holdings, Inc.
Balance at December 31, 2014
Net earnings
Other comprehensive earnings (loss)
Stock-based compensation
Minimum withholding taxes on net share settlements of stock-based compensation
Excess tax benefits on stock-based compensation
Stock issued upon exercise of stock options
Series A QVC Group stock repurchases
Distribution to noncontrolling interest
Acquisition of zulily
Acquisition of noncontrolling interest
Other
Balance at December 31, 2015
Net earnings
Other comprehensive earnings (loss)
Cumulative effect of accounting change
Stock-based compensation
Withholding taxes on net share settlements of stock-based compensation
Stock issued upon exercise of stock options
Series A QVC Group stock repurchases
Distribution to noncontrolling interest
Distribution of Liberty Expedia Holdings
Reclassification
Other
Balance at December 31, 2016
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
1
amounts in millions
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,146
—
—
103
(58)
35
36
(785)
—
(8)
(465)
4
—
—
70
(30)
16
40
(785)
—
1,087
(31)
(1)
370
—
—
—
89
(16)
24
(799)
—
—
341
(9)
—
99
—
(199)
—
—
—
—
—
—
—
6
(94)
—
(121)
—
—
—
—
—
—
—
—
—
(215)
—
(86)
—
—
—
—
—
—
35
—
—
(266)
5,685
537
—
—
—
—
—
—
—
—
(465)
5,757
869
—
—
—
—
—
—
—
—
—
—
6,626
1,235
—
5
—
—
—
—
—
(493)
(341)
—
7,032
See accompanying notes to consolidated financial statements.
II-36
equity of
subsidiaries
Total
equity
4,499
89
(12)
39
—
—
—
—
(42)
8
(4,474)
107
42
(1)
—
—
—
—
—
(58)
—
(2)
—
88
39
1
—
—
—
—
—
(39)
—
—
—
89
11,435
626
(211)
142
(58)
35
36
(785)
(42)
—
(5,398)
5,780
911
(122)
70
(30)
16
40
(785)
(58)
1,087
(33)
(1)
6,875
1,274
(85)
5
89
(16)
24
(799)
(39)
(458)
—
(9)
6,861
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of Liberty Interactive Corporation (formerly
known as Liberty Media Corporation) and its controlled subsidiaries (collectively, "Liberty" or the "Company" unless the
context otherwise requires). All significant intercompany accounts and transactions have been eliminated in consolidation.
Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the video and
online commerce industries in North America, Europe and Asia.
As further discussed in note 6, on August 27, 2014, Liberty completed the spin-off to holders of its Liberty Ventures
common stock shares of its former wholly-owned subsidiary, Liberty TripAdvisor Holdings, Inc. (“TripAdvisor Holdings”)
(the “TripAdvisor Holdings Spin-Off”). The consolidated financial statements of Liberty have been prepared to reflect
TripAdvisor Holdings as discontinued operations. Accordingly, the revenue, costs and expenses, and cash flows of
TripAdvisor Holdings at the time of the TripAdvisor Holdings Spin-Off have been excluded from the respective captions in
the accompanying consolidated statements of operations, comprehensive earnings (loss) and cash flows in such consolidated
financial statements.
Additionally, on October 3, 2014, Liberty announced that its board of directors approved the change in attribution from
the Interactive Group (which we refer to as the QVC Group) to the Ventures Group of its Digital Commerce businesses
(defined below) and cash. The reattributed Digital Commerce businesses are comprised of Liberty’s subsidiaries
Backcountry.com, Inc. (“Backcountry”), Bodybuilding.com, LLC (“Bodybuilding”), CommerceHub (as defined below),
Evite, Inc. (“Evite”), and Provide Commerce, Inc. (“Provide”) (collectively, the “Digital Commerce” businesses). See note 2
for additional information on the reattribution.
On December 31, 2014, Liberty announced the closing of the acquisition by FTD Companies, Inc. ("FTD") of Provide
(the “FTD Transaction”). Under the terms of the transaction, Liberty received approximately 10.2 million shares of FTD
common stock representing approximately 35% of the combined company and approximately $145 million in cash. We
recognized a gain of $75 million as a result of this transaction, which is included in the Gains (losses) on transactions, net
line item in the consolidated statements of operations. Subsequent to completion of the transaction, Liberty accounts for FTD
as an equity-method affiliate based on the ownership level and board representation. The FTD Transaction resulted in a non-
cash investing addition of $355 million to the investments in affiliates, accounted for using the equity method line item
within the consolidated balance sheets. Given our significant continuing involvement with FTD, Provide is not presented as a
discontinued operation in the consolidated financial statements of Liberty.
On October 1, 2015, Liberty acquired all the outstanding shares of zulily, inc. (“zulily”) (now known as zulily, llc). zulily
is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product
styles launched every day. zulily is attributed to the QVC Group. See note 5 for additional information related to the
acquisition.
On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former
wholly-owned subsidiary CommerceHub, Inc. (“CommerceHub”). The CommerceHub Spin-Off was accomplished by the
distribution by Liberty of a dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each outstanding
share of Liberty’s Series A Liberty Ventures common stock as of 5:00 p.m., New York City time, on July 8, 2016 (such date
and time, the “Record Date”), (ii) 0.1 of a share of CommerceHub’s Series B common stock for each outstanding share of
Liberty’s Series B Liberty Ventures common stock as of the Record Date and (iii) 0.2 of a share of CommerceHub’s Series C
common stock for each outstanding share of Series A and Series B Liberty Ventures common stock as of the Record Date, in
each case, with cash paid in lieu of fractional shares. In September 2016, the IRS completed its review of the CommerceHub
Spin-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an
Issue Resolution Agreement from the IRS documenting this conclusion. CommerceHub is included in the Corporate and
other segment through July 22, 2016 and is not presented as a discontinued operation as
II-37
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
the CommerceHub Spin-Off did not represent a strategic shift that had a major effect on Liberty’s operations and financial
results.
On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its
former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). Expedia Holdings is comprised of,
among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned subsidiary
Bodybuilding. On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed
$299 million, net of certain debt related costs, to Liberty on November 4, 2016. The Expedia Holdings Split-Off was
accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A Liberty Ventures common stock for
0.4 of a share of Expedia Holdings Series A common stock at 5:00 p.m., New York City time, on November 4, 2016 (such
date and time, the “Redemption Date”) and (ii) 0.4 of each outstanding share of Liberty’s Series B Liberty Ventures common
stock for 0.4 of a share of Expedia Holdings Series B common stock on the Redemption Date, in each case, with cash paid in
lieu of any fractional shares of Liberty Ventures common stock or Expedia Holdings common stock (after taking into account
all of the shares owned of record by each holder thereof, as applicable). In February 2017, the IRS completed its review of
the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction.
Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion.
Liberty views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued
operations presentation. Based on a quantitative analysis, the split-off of Liberty’s interest in Expedia represents a strategic
shift that has a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by
Expedia. Accordingly, the consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest in
Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off does not
have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The
disposition of Bodybuilding does not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not
presented as a discontinued operation in the consolidated financial statements of Liberty. Bodybuilding is included in the
Corporate and other segment through November 4, 2016.
Pursuant to a reimbursement agreement entered into in connection with the Expedia Holdings Split-Off, Liberty
reimbursed Expedia, a related party prior to the Expedia Holdings Split-Off, $3.7 million during October 2016, thereby
settling the reimbursement agreement.
Liberty and Liberty Media Corporation (“LMC”) (for accounting purposes a related party of Liberty) entered into certain
agreements in order to govern certain of the ongoing relationships between the two companies. These agreements include a
reorganization agreement, a services agreement, a facilities sharing agreement and a tax sharing agreement.
The Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between
Liberty and LMC and other agreements related to tax matters. Liberty is party to on-going discussions with the IRS under
the Compliance Assurance Process audit program. The IRS may propose adjustments that relate to tax attributes allocated to
and income allocable to LMC. Any potential outcome associated with any proposed adjustments would be covered by the
Tax Sharing Agreement and are not expected to have any impact on Liberty's financial position. Pursuant to the Services
Agreement, LMC will provide Liberty with general and administrative services including legal, tax, accounting, treasury and
investor relations support. Liberty will reimburse LMC for direct, out-of-pocket expenses incurred by LMC in providing
these services and for Liberty's allocable portion of costs associated with any shared services or personnel based on an
estimated percentage of time spent providing services to Liberty. Under the Facilities Sharing Agreement, Liberty will share
office space with LMC and related amenities at LMC's corporate headquarters. Under these various agreements
approximately $10 million, $13 million and $11 million of these allocated expenses were reimbursed from Liberty to LMC
for the years ended December 31, 2016, 2015 and 2014, respectively.
II-38
Table of Contents
(2) Tracking Stocks
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
On August 9, 2012 Liberty completed the approved recapitalization of its common stock through the creation of the
Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. In the recapitalization, each holder
of Liberty Interactive Corporation common stock remained a holder of the same amount and series of Liberty Interactive
common stock and received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a
dividend, with cash paid in lieu of fractional shares of Liberty Ventures common stock.
On February 27, 2014, Liberty's board approved a two for one stock split of Series A and Series B Liberty Ventures
common stock, effected by means of a dividend. The stock split was done in order to bring Liberty into compliance with a
Nasdaq listing requirement regarding the minimum number of publicly held shares of the Series B Liberty Ventures common
stock. In the stock split, a dividend was paid on April 11, 2014 of one share of Series A or Series B Liberty Ventures common
stock to holders of each share of Series A or Series B Liberty Ventures common stock, respectively, held by them as of 5:00
pm, New York City time, on April 4, 2014. The stock split has been recorded retroactively for all periods presented for
comparability purposes.
As discussed in note 1, on October 3, 2014, Liberty announced that its board of directors approved the change in
attribution from the QVC Group to the Ventures Group its Digital Commerce businesses and cash, which was provided by
QVC as a result of a draw-down of QVC’s credit facility. The reattribution of the Digital Commerce businesses is presented
on a prospective basis from the date of the reattribution in Liberty’s consolidated financial statements and attributed financial
information, with October 1, 2014 used as a proxy for the date of the reattribution.
In exchange for the Digital Commerce businesses and $970 million of cash (collectively, the "Reattributed Assets"), an
inter-group interest in the Ventures Group was created in favor of the QVC Group. This inter-group interest was represented
as a number of shares of Liberty Ventures common stock issuable to the QVC Group, which we refer to as the "Inter-Group
Interest Shares" (as calculated below). Immediately following the reattribution on October 3, 2014, Liberty's board declared a
dividend of the Inter-Group Interest Shares to the holders of Series A and Series B QVC Group common stock in full
elimination of the inter-group interest. In connection with the payment of the dividend, typical antidilution adjustments were
made to outstanding options of QVC Group common stock equity incentive awards, and the Liberty board has reattributed
cash commensurate with the fair value of options assumed (outside of the Reattributed Assets) to the Ventures Group relating
to its assumption of liabilities related to those awards.
In the dividend, the Inter-Group Interest Shares were allocated, pro-rata, to the outstanding shares of Series A and
Series B QVC Group common stock at 5:00 p.m., New York City time, on October 13, 2014, the record date for the dividend,
such that each holder of QVC Group common stock received 0.14217 of a share of the corresponding series of Liberty
Ventures common stock for each share of QVC Group common stock held as of the record date, with cash paid in lieu of
fractional shares. The distribution date for the dividend was on October 20, 2014, and the QVC Group common stock began
trading ex-dividend on October 15, 2014. The distribution resulted in 67,671,232 shares of combined Series A and Series B
Liberty Ventures common stock being issued. The Inter-Group Interest Shares were allocated such that the number of shares
of Series A Liberty Ventures common stock and shares of Series B Liberty Ventures common stock issued in the dividend
were in the same proportion as the shares of Series A QVC Group common stock and Series B QVC Group common stock
outstanding on the record date, with each share of Series A QVC Group common stock and each share of Series B QVC
Group common stock receiving the same fraction of a share of Series A or Series B Liberty Ventures common stock, as the
case may be.
In connection with the reattribution, the Liberty Interactive tracking stock trading symbol “LINTA” was changed to
"QVCA" and the "LINTB" tracking stock trading symbol was changed to "QVCB," effective October 7, 2014. Other than
II-39
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
the issuance of Liberty Ventures shares in the fourth quarter of 2014, the reattribution of tracking stock groups has no
consolidated impact on Liberty.
Tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic
performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty
has two tracking stocks—QVC Group common stock and Liberty Ventures common stock, which are intended to track and
reflect the economic performance of the QVC Group and Ventures Group, respectively. While the QVC Group and the
Ventures Group have separate collections of businesses, assets and liabilities attributed to them, no group is a separate legal
entity and therefore cannot own assets, issue securities or enter into legally binding agreements. Holders of tracking stock
have no direct claim to the group's stock or assets and are not represented by separate boards of directors. Instead, holders of
tracking stock are stockholders of the parent corporation, with a single board of directors and subject to all of the risks and
liabilities of the parent corporation.
The term "Ventures Group" does not represent a separate legal entity, rather it represents those businesses, assets and
liabilities that have been attributed to that group. Following the reattribution, the Ventures Group is comprised primarily of
our interests in FTD, LendingTree, and Liberty Broadband, our Digital Commerce businesses, investments in Charter,
Interval Leisure Group, Inc. (“Interval”) and Time Warner Inc. (“Time Warner”), as well as cash in the amount of
approximately $487 million (at December 31, 2016), including subsidiary cash. The Ventures Group also has attributed to it
certain liabilities related to our Exchangeable Debentures and certain deferred tax liabilities. The Ventures Group is primarily
focused on the maximization of the value of these investments and investing in new business opportunities.
The term "QVC Group" does not represent a separate legal entity, rather it represents those businesses, assets and
liabilities that have been attributed to that group. The QVC Group is primarily comprised of our merchandise-focused
televised-shopping programs, Internet and mobile application businesses. Following the reattribution, the QVC Group has
attributed to it the remainder of our businesses and assets, including our wholly-owned subsidiaries QVC and zulily (as of
October 1, 2015) and our 38% interest in HSN, Inc. (“HSN” or “HSNi”) as well as cash in the amount of approximately $338
million (at December 31, 2016), including subsidiary cash.
On May 18, 2016, Liberty completed a $2.4 billion investment in Liberty Broadband (for accounting purposes a related
party of the Company) in connection with the merger of Charter and Time Warner Cable Inc. ("TWC"). The proceeds of this
investment were used by Liberty Broadband to fund, in part, its acquisition of $5 billion of stock in the new public parent
company (“Charter”) of the combined enterprises. Liberty, along with third party investors, all of whom invested on the same
terms as Liberty, purchased newly issued shares of Liberty Broadband Series C common stock at a per share price of $56.23,
which was determined based upon the fair value of Liberty Broadband's net assets on a sum-of-the parts basis at the time the
investment agreements were executed (May 2015). Liberty's investment in Liberty Broadband was funded using cash on
hand and is attributed to the Ventures Group. See note 9 for additional information related to this investment.
Liberty, as part of the merger described above, exchanged, in a tax-free transaction, its shares of TWC common stock for
shares of Charter Class A common stock, on a one-for-one basis, and Liberty has granted to Liberty Broadband a proxy and a
right of first refusal with respect to the shares of Charter Class A common stock held by Liberty in the exchange.
See Exhibit 99.1 to this Annual Report on Form 10-K for unaudited attributed financial information for Liberty's
tracking stock groups.
II-40
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents consist of investments which are readily convertible into cash and have maturities of three months or
less at the time of acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful accounts and sales returns. A provision for bad debts is
provided as a percentage of accounts receivable based on historical experience and included in selling, general and
administrative expense. A provision for vendor receivables are determined based on an estimate of probable expected losses
and included in cost of goods sold. A summary of activity in the allowance for doubtful accounts is as follows:
Balance
beginning Charged
Additions
Deductions-
Balance
end of
of year
to expense Other write-offs
amounts in millions
year
$
$
$
87
92
86
109 (1)
84 (1)
95 (2)
(96)
(88)
(87)
99
87
92
2016
2015
2014
Inventory
Inventory, consisting primarily of products held for sale, is stated at the lower of cost or market. Cost is determined by
the average cost method, which approximates the first-in, first-out method. Assessments about the realizability of inventory
require the Company to make judgments based on currently available information about the likely method of disposition
including sales to individual customers, returns to product vendors, liquidations and the estimated recoverable values of each
disposition category. Inventory is stated net of inventory obsolescence reserves of $76 million and $87 million for the years
ended December 31, 2016 and 2015, respectively.
In July 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that changes the
measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new
principle is part of the FASB’s simplification initiative and applies to entities that measure inventory using a method other
than last-in, first-out or the retail inventory method. The new standard is effective for the Company for fiscal years and
interim periods beginning after December 15, 2016. The Company has determined there is no significant effect of the
standard on its ongoing financial reporting.
Investments
All marketable equity and debt securities held by the Company are classified as available-for-sale ("AFS") and are
carried at fair value generally based on quoted market prices. United States (“U.S.”) generally accepted accounting
principles ("GAAP") permit entities to choose to measure many financial instruments, such as AFS securities, and certain
other items at fair value and to recognize the changes in fair value of such instruments in the entity's statements of operations
(the "fair value option"). Liberty had previously entered into economic hedges for certain of its non-strategic AFS securities
(although such instruments were not accounted for as fair value hedges by the Company). Changes in the fair value of these
economic hedges were reflected in Liberty's statements of operations as unrealized gains (losses). In order to better match
the changes in fair value of the subject AFS securities and the changes in fair value of the corresponding economic hedges in
the Company's financial statements, Liberty has elected the fair value option for those of its AFS securities which it considers
to be non-strategic ("Fair Value Option Securities"). Accordingly, changes in the fair value of Fair Value Option Securities,
as determined by quoted market prices, are reported in realized and unrealized
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
gains (losses) on financial instruments in the accompanying consolidated statements of operations. The total value of AFS
securities for which the Company has elected the fair value option aggregated $1,846 million and $1,294 million as of
December 31, 2016 and 2015, respectively.
Other investments in which the Company's ownership interest is less than 20%, unless the Company has the ability to
exercise significant influence, and that are not considered marketable securities are carried at cost.
For those investments in affiliates in which the Company has the ability to exercise significant influence, the equity
method of accounting is used, except in situations where the fair value option has been selected. Under the equity method of
accounting, the investment, originally recorded at cost, is adjusted to recognize the Company's share of net earnings or losses
of the affiliate as they occur rather than as dividends or other distributions are received. Losses are limited to the extent of
the Company's investment in, advances to and commitments for the investee. In the event the Company is unable to obtain
accurate financial information from an equity affiliate in a timely manner, the Company records its share of earnings or losses
of such affiliate on a lag.
Changes in the Company's proportionate share of the underlying equity of an equity method investee, which result from
the issuance of additional equity securities by such equity investee, are recognized in the statements of operations through the
Other, net line item. To the extent there is a difference between our ownership percentage in the underlying equity of an
equity method investee and our carrying value, such difference is accounted for as if the equity method investee were a
consolidated subsidiary.
The Company continually reviews its equity investments and its AFS securities which are not Fair Value Option
Securities to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors
the Company considers in its determination are the length of time that the fair value of the investment is below the
Company's carrying value; the severity of the decline; and the financial condition, operating performance and near term
prospects of the investee. In addition, the Company considers the reason for the decline in fair value, be it general market
conditions, industry specific or investee specific; analysts' ratings and estimates of 12 month share price targets for the
investee; changes in stock price or valuation subsequent to the balance sheet date; and the Company's intent and ability to
hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed
to be other than temporary, the carrying value of the security is written down to fair value. In situations where the fair value
of an investment is not evident due to a lack of a public market price or other factors, the Company uses its best estimates and
assumptions to arrive at the estimated fair value of such investment. The Company's assessment of the foregoing factors
involves considerable management judgment and accordingly, actual results may differ materially from the Company's
estimates and judgments. Writedowns for AFS securities which are not Fair Value Option Securities would be included in
the consolidated statements of operations as other than temporary declines in fair values of investments. Writedowns for
equity method investments would be included in share of earnings (losses) of affiliates.
In January 2016, the FASB issued new accounting guidance that is intended to improve the recognition and measurement
of financial instruments. The new guidance requires equity investments with readily determinable fair values (except those
accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with
changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without
readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective
for the Company for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted under
certain circumstances. The Company has not yet determined the effect of the standard on its ongoing financial reporting.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Derivative Instruments and Hedging Activities
All of the Company's derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet
at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and are
recognized in the statements of operations when the hedged item affects earnings. Ineffective portions of changes in the fair
value of cash flow hedges are recognized in earnings. If the derivative is not designated as a hedge, changes in the fair value
of the derivative are recognized in earnings.
The Company generally enters into derivative contracts that it intends to designate as a hedge of a forecasted transaction
or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all
hedging relationships, the Company formally documents the hedging relationship and its risk management objective and
strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the
hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a
description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash
flows of hedged items. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as
a cash flow hedge are recorded in accumulated other comprehensive income to the extent that the derivative is effective as a
hedge, until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of
the change in fair value of a derivative instrument that qualifies as a cash flow hedge is reported in earnings.
During the years ended December 31, 2016 and 2015, QVC entered into hedges of a net investment in a foreign
subsidiary. The purpose of the hedges was to protect QVC's investment in the foreign subsidiary against the variability of the
U.S. Dollar and Euro exchange rate. On December 19, 2016, this hedge instrument matured, resulting in a gain that was
recognized in QVC’s other comprehensive income.
During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional
amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt.
Property and Equipment
Property and equipment consisted of the following:
Land
Buildings and improvements
Support equipment
Projects in progress
Total property and equipment
December 31, December 31,
2016
2015
amounts in millions
$
81
1,016
1,034
32
2,163
$
85
995
973
71
2,124
Property and equipment, including significant improvements, is stated at cost. Depreciation is computed using the
straight-line method using estimated useful lives of 2 to 15 years for support equipment and 8 to 20 years for buildings and
improvements. Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $171 million, $153
million and $158 million, respectively.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment upon certain triggering events. Goodwill and other intangible assets with
indefinite useful lives (collectively, "indefinite lived intangible assets") are not amortized, but instead are tested for
impairment at least annually. Our annual impairment assessment of our indefinite-lived intangible assets is performed during
the fourth quarter of each year.
The Company utilizes a qualitative assessment for determining whether step one of the goodwill impairment analysis is
necessary. The accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. In evaluating goodwill on a qualitative basis the Company
reviews the business performance of each reporting unit and evaluates other relevant factors as identified in the relevant
accounting guidance to determine whether it was more likely than not that an indicated impairment exists for any of our
reporting units. The Company considers whether there are any negative macroeconomic conditions, industry specific
conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal
environments and how these factors might impact company specific performance in future periods. As part of the analysis the
Company also considers fair value determinations for certain reporting units that have been made at various points
throughout the current year and prior year for other purposes.
If based on the qualitative analysis it is more likely than not that an impairment exists, the Company performs the two-
step impairment test. In the Step 1 Test, the Company compares the estimated fair value of a reporting unit to its carrying
value. Developing estimates of fair value requires significant judgments, including making assumptions about appropriate
discount rates, perpetual growth rates, relevant comparable market multiples, public trading prices and the amount and timing
of expected future cash flows. The cash flows employed in Liberty's valuation analyses are based on management's best
estimates considering current marketplace factors and risks as well as assumptions of growth rates in future years. There is no
assurance that actual results in the future will approximate these forecasts. For those reporting units whose carrying value
exceeds the fair value, a second test is required to measure the impairment loss (the "Step 2 Test"). In the Step 2 Test, the fair
value (Level 3) of the reporting unit is allocated to all of the identifiable assets and liabilities of the reporting unit with any
residual value being allocated to goodwill. Any excess of the carrying value of the goodwill over this allocated amount is
recorded as an impairment charge.
The accounting guidance also permits entities to first perform a qualitative assessment to determine whether it is more
likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. If the qualitative assessment supports
that it is more likely than not that the carrying value of the Company’s indefinite-lived intangible assets, other than goodwill,
exceeds its fair value, then a quantitative assessment is performed. If the carrying value of an indefinite-lived intangible asset
exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill impairment. Under
the new guidance, an entity will no longer perform a Step 2 Test to measure goodwill impairment. Instead, impairment will
be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early
adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently
evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
Impairment of Long-lived Assets
The Company periodically reviews the carrying amounts of its property and equipment and its intangible assets (other
than goodwill and indefinite-lived intangible assets) to determine whether current events or circumstances indicate that
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
such carrying amounts may not be recoverable. If the carrying amount of the asset group is greater than the expected
undiscounted cash flows to be generated by such asset group, including its ultimate disposition, an impairment adjustment is
to be recognized. Such adjustment is measured by the amount that the carrying value of such asset groups exceeds their fair
value. The Company generally measures fair value by considering sale prices for similar asset groups or by discounting
estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to estimate
the fair value of asset groups. Accordingly, actual results could vary significantly from such estimates. Asset groups to be
disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
Noncontrolling Interests
The Company reports noncontrolling interests of subsidiaries within equity in the balance sheet and the amount of
consolidated net income attributable to the parent and to the noncontrolling interest is presented in the statements of
operations. Also, changes in ownership interests in subsidiaries in which the Company maintains a controlling interest are
recorded in equity.
Foreign Currency Translation
The functional currency of the Company is the U.S. Dollar. The functional currency of the Company's foreign
operations generally is the applicable local currency for each foreign subsidiary. Assets and liabilities of foreign subsidiaries
are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations are
translated at the average exchange rates in effect during the applicable period. The resulting unrealized cumulative
translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other comprehensive
earnings in stockholders' equity.
Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the
time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are reflected
in the accompanying consolidated statements of operations and comprehensive earnings (loss) as unrealized (based on the
applicable period-end exchange rate) or realized upon settlement of the transactions. These realized and unrealized gains and
losses are reported in the Other, net line item in the consolidated statements of operations.
Revenue Recognition
Retail revenue is recognized at the time of delivery to customers. The revenue for shipments in-transit is recorded as
deferred revenue and included in other current liabilities. Additionally, service revenue, which is less than one percent of
overall revenue, is recognized when the applicable criteria are met: persuasive evidence of an arrangement exists, services
have been rendered, the price is fixed and determinable and collectability is reasonably assured.
An allowance for returned merchandise is provided as a percentage of sales based on historical experience. The total
reduction in sales due to returns for the years ended December 31, 2016, 2015 and 2014 aggregated $1,865 million, $2,037
million and $2,123 million, respectively. Sales tax collected from customers on retail sales is recorded on a net basis and is
not included in revenue.
A summary of activity in the allowance for sales returns, is as follows:
Balance beginning
of year
Additions - charged
to earnings
Deductions
Balance end of
year
2016
2015
2014
$
$
$
106
109
106
in millions
1,051
1,213
1,253
(1,060)
(1,216)
(1,250)
98
106
109
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers. The new guidance
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and
assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued additional guidance
which clarifies principal versus agent considerations, and in April 2016, the FASB issued further guidance which clarifies the
identification of performance obligations and the implementation guidance for licensing. The updated guidance will replace
most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full
retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning
after December 15, 2016. We have identified the Company’s various revenue streams and are working with our subsidiaries
to evaluate the quantitative effects of the new guidance. The Company has not yet selected a transition method. We will
continue to provide updates as to the progress of our evaluation in our quarterly reports during 2017.
Cost of Sales
Cost of sales primarily includes actual product cost, provision for obsolete inventory, buying allowances received from
suppliers, shipping and handling costs and warehouse costs.
Advertising Costs
Advertising costs generally are expensed as incurred. Advertising expense aggregated $231 million, $154 million and
$271 million for the years ended December 31, 2016, 2015 and 2014, respectively. Advertising costs are reflected in the
selling, general and administrative, including stock-based compensation line item in our consolidated statements of
operations.
Stock-Based Compensation
As more fully described in note 15, the Company has granted to its directors, employees and employees of its
subsidiaries options, restricted stock and stock appreciation rights relating to shares of QVC Group and/or Liberty Ventures
common stock ("Liberty common stock") (collectively, "Awards"). The Company measures the cost of employee services
received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date
fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service
(usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for an
Award of liability instruments (such as stock appreciation rights that will be settled in cash) based on the current fair value of
the Award, and remeasures the fair value of the Award at each reporting date.
Stock compensation expense was $97 million, $127 million and $108 million for the years ended December 31, 2016,
2015 and 2014, respectively, included in selling, general and administrative expense in the accompanying consolidated
statements of operations.
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based
payment award transactions, including the income tax consequences, forfeitures, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. The new standard is effective for the Company for fiscal years
and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this
guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are
recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize
forfeitures as they occur rather than continue to estimate expected forfeitures. In addition, pursuant to the new guidance,
excess tax benefits are classified as an operating activity on the consolidated statements of cash flows. The recognition of
excess tax benefits and deficiencies are applied prospectively from January 1, 2016. For tax benefits that were not
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
previously recognized and for adjustments to compensation cost based on actual forfeitures, the Company has recorded a
cumulative-effect adjustment in retained earnings as of January 1, 2016. The presentation changes for excess tax benefits
have been applied retrospectively in the consolidated statements of cash flows, resulting in $33 million and $21 million of
excess tax benefits for the years ended December 31, 2015 and 2014, respectively, reclassified from cash flows from
financing activities to cash flows from operating activities.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying value amounts
and income tax bases of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit
carryforwards. The deferred tax assets and liabilities are calculated using enacted tax rates in effect for each taxing
jurisdiction in which the Company operates for the year in which those temporary differences are expected to be recovered or
settled. Net deferred tax assets are then reduced by a valuation allowance if the Company believes it more likely than not
such net deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of an enacted change in tax
rates is recognized in income in the period that includes the enactment date.
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest
expense from the first period the interest would begin accruing according to the relevant tax law. Such interest expense is
included in interest expense in the accompanying consolidated statements of operations. Any accrual of penalties related to
underpayment of income taxes on uncertain tax positions is included in other income (expense) in the accompanying
consolidated statements of operations.
In October 2016, the FASB issued new accounting guidance which requires an entity to recognize at the transaction date
the income tax consequences of intercompany asset transfers. The guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the
effect that the updated standard will have on our consolidated financial statements and related disclosures.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Earnings (Loss) Attributable to Liberty Stockholders and Earnings (Loss) Per Common Share
Net earnings (loss) attributable to Liberty stockholders is comprised of the following (amounts in millions):
QVC Group
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations
Liberty Ventures
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations
Years ended December 31,
2016
2015
2014
$
$
$
$
473
NA
742
20
640
NA
(51)
280
535
(15)
(37)
54
Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) attributable to such
common stock by the weighted average number of common shares outstanding for the period. Diluted EPS presents the
dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods
presented.
Series A and Series B QVC Group Common Stock
EPS for all periods through December 31, 2016, is based on the following weighted average shares
outstanding. Excluded from diluted EPS for the years ended December 31, 2016, 2015 and 2014 are approximately 3
million, 6 million and 1 million potential common shares, respectively, because their inclusion would be antidilutive.
Basic WASO
Potentially dilutive shares
Diluted WASO
Series A and Series B Liberty Ventures Common Stock
Years ended December 31,
2016
2015
2014
number of shares in millions
476
5
481
475
6
481
484
8
492
As discussed in note 2, on October 3, 2014, Liberty attributed from the QVC Group to the Ventures Group its Digital
Commerce businesses. In exchange for the Reattributed Assets, Inter-Group Interest Shares in the Ventures Group were
created in favor of the QVC Group. Immediately following the reattribution on October 3, 2014, Liberty's board declared a
dividend of the Inter-Group Interest Shares to the holders of Series A and Series B QVC Group common stock in full
elimination of the inter-group interest. The Inter-Group Interest Shares were allocated, pro-rata, to the outstanding shares of
Series A and Series B QVC Group common stock at 5:00 p.m., New York City time, on October 13, 2014, the record date for
the dividend, such that each holder of QVC Group common stock received 0.14217 of a share of the corresponding series of
Liberty Ventures common stock for each share of QVC Group common stock held as of the record date, with cash paid in
lieu of fractional shares. The distribution date for the dividend was on October 20, 2014, and the Liberty Interactive common
stock began trading ex-dividend on October 15, 2014. The reattribution of the Digital Commerce companies is presented on a
prospective basis from the date of the reattribution in Liberty’s consolidated financial statements, with October 1, 2014 used
as a proxy for the date of the reattribution. Additionally, the Expedia Holdings Split-Off on November 4, 2016 reduced the
number of outstanding shares of Liberty Ventures common stock as of that date. See note 13 for more discussion regarding
the Expedia Holdings Split-Off.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
EPS for all periods
the following weighted average shares
outstanding. Excluded from diluted EPS for the year ended December 31, 2016 are less than a million potential common
shares because their inclusion would be antidilutive.
through December 31, 2016,
is based on
Basic WASO
Potentially dilutive shares
Diluted WASO
Reclasses and adjustments
Years ended December 31,
2016
2015
2014
number of shares in millions
134
1
135
142
1
143
87
1
88
Certain prior period amounts have been reclassified for comparability with the current year presentation.
As a result of repurchases of Series A QVC Group common stock, the Company’s additional paid-in capital balance was
in a deficit position as of December 31, 2016. In order to maintain a zero balance in the additional paid-in capital account, we
reclassified the amount of the deficit ($341 million) at December 31, 2016 to retained earnings.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Liberty
considers (i) recurring and non-recurring fair value measurements, (ii) accounting for income taxes, (iii) assessments of
other-than-temporary declines in fair value of its investments and (iv) estimates of retail-related adjustments and allowances
to be its most significant estimates.
Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making
process or business management practices of these affiliates. Accordingly, Liberty relies on management of these affiliates to
provide it with accurate financial information prepared in accordance with GAAP that Liberty uses in the application of the
equity method. In addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the
financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the
financial information provided by its equity affiliates that would have a material effect on Liberty's consolidated financial
statements.
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued new accounting guidance which requires management to assess whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the financial statements are issued. If substantial doubt exists, additional disclosures are
required. The Company adopted this guidance during the year ended December 31, 2016. The adoption of this guidance did
not have an impact on our consolidated financial statements and related disclosures.
In September 2015, the FASB issued new accounting guidance which eliminates the requirement for an acquirer in a
business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize
measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of
any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date.
The Company adopted this guidance in the first quarter of 2016. The adoption of this guidance did not have a material impact
on our consolidated financial statements and related disclosures.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
New Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued new guidance which revises the accounting for leases. Under the new guidance,
lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new guidance also simplifies
the accounting for sale and leaseback transactions. The new standard, to be applied via a modified retrospective transition
approach, is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early
adoption permitted. The Company has not yet determined the effect of the standard on its ongoing financial reporting. The
Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance
on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and
collecting lease data.
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for acquisitions:
Fair value of assets acquired
Intangible assets not subject to amortization
Intangible assets subject to amortization
Net liabilities assumed
Deferred tax assets (liabilities)
Fair value of equity consideration
Cash paid for acquisitions, net of cash acquired
Cash paid for interest
Cash paid for income taxes
(5) Acquisitions
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
$
$
—
—
154
—
7 1,791
—
837
(40)
—
(214)
—
33
—
(637)
— (1,087) —
—
844
—
354
374
362
204
318
44
On October 1, 2015, Liberty acquired zulily for consideration of approximately $2.3 billion, comprised of $9.375 of cash
and 0.3098 newly issued shares of QVCA for each zulily share, with cash paid in lieu of any fractional shares. The fair value
of the issued shares was determined based on the trading price of QVCA shares on the last trading day prior to the
acquisition. Funding for the $1.2 billion cash portion of the consideration came from cash on hand at zulily and a distribution
from QVC funded by a drawdown under its revolving credit facility (see note 11). zulily is attributed to the QVC Group.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The final purchase price allocation for zulily is as follows (amounts in millions):
Cash and cash equivalents
Property and equipment
Other assets
Goodwill
Trademarks
Intangible assets subject to amortization
Accounts payable & Accrued liabilities
Other liabilities assumed
Deferred tax liabilities
$
$
341
105
46
917
870
790
(145)
(65)
(607)
2,252
Intangible assets acquired during 2015 were comprised of customer relationships of $490 million with a weighted
average life of approximately 4 years, email lists of $250 million with a weighted average life of approximately 2 years, and
capitalized software of $50 million with a weighted average life of approximately 3 years. None of the acquired goodwill is
deductible for tax purposes. Subsequent to December 31, 2015, the preliminary purchase price allocation was adjusted,
resulting in decreases of $50 million to trademarks, $40 million to intangible assets subject to amortization and $33 million to
deferred tax liabilities and a corresponding increase of $57 million to goodwill. If these adjustments had been recorded as of
the acquisition date, amortization expense would have been approximately $3 million lower for the period ended December
31, 2015. There have been no other significant changes to our purchase price allocation since December 31, 2015.
Included in net earnings (loss) from continuing operations for the year ended December 31, 2015 is $34 million related
to zulily’s operations since the date of acquisition.
The Pro Forma revenue and net earnings from continuing operations of Liberty, prepared utilizing the historical financial
statements of zulily, giving effect to purchase accounting related adjustments made at the time of acquisition, as if the
transaction discussed above occurred on January 1, 2014, are as follows:
Revenue
Net earnings (loss) from continuing operations
Years Ended December 31,
2015
2014
amounts in millions
(unaudited)
$
10,907
750
11,700
419
The Pro Forma information is not representative of Liberty’s future financial position, future results of operations or
future cash flows nor does it reflect what Liberty’s financial position, results of operations or cash flows would have been as
if the transaction had happened previously and Liberty controlled zulily during the periods presented.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(6) Disposals
Disposals - Presented as Discontinued Operations
On August 27, 2014, Liberty completed the TripAdvisor Holdings Spin-Off to holders of its Liberty Ventures common
stock shares of its former wholly-owned subsidiary, TripAdvisor Holdings. At the time of the TripAdvisor Holdings Spin-
Off, TripAdvisor Holdings was comprised of Liberty’s former 22% economic and 57% voting interest in TripAdvisor, Inc., as
well as BuySeasons, Inc., Liberty’s former wholly-owned subsidiary, and a corporate level net debt balance of $350 million.
In connection with the TripAdvisor Holdings Spin-Off during August 2014, TripAdvisor Holdings drew down $400 million
in margin loans and distributed approximately $350 million to Liberty. Concurrently with the margin loans, Liberty and
TripAdvisor Holdings entered into a promissory note that expires in August 2017 pursuant to which TripAdvisor Holdings
may request, if the closing price per share of TripAdvisor common stock were to fall below certain minimum values, up to
$200 million in funds from Liberty. The TripAdvisor Holdings Spin-Off has been recorded at historical cost due to the pro
rata nature of the distribution. Following the completion of the TripAdvisor Holdings Spin-Off, Liberty and TripAdvisor
Holdings operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the
other. The consolidated financial statements of Liberty have been prepared to reflect TripAdvisor Holdings as discontinued
operations. Accordingly, revenue, costs and expenses, and cash flows of the businesses at the time of the TripAdvisor
Holdings Spin-Off have been excluded from the respective captions in the accompanying consolidated statements of
operations, comprehensive earnings (loss) and cash flows in such consolidated financial statements.
In connection with the TripAdvisor Holdings Spin-off, Liberty and TripAdvisor Holdings entered into a tax sharing
agreement (the “TripAdvisor Holdings Tax Sharing Agreement”). The TripAdvisor Holdings Tax Sharing Agreement
provides for the allocation and indemnification of tax liabilities and benefits between Liberty and TripAdvisor Holdings and
other agreements related to tax matters. Among other things, pursuant to the TripAdvisor Holdings Tax Sharing Agreement,
TripAdvisor Holdings has agreed to indemnify Liberty, subject to certain limited exceptions, for losses and taxes resulting
from the TripAdvisor Holdings Spin-Off to the extent such losses or taxes result primarily from, individually or in the
aggregate, the breach of certain restrictive covenants made by TripAdvisor Holdings (applicable to actions or failures to act
by TripAdvisor Holdings and its subsidiaries following the completion of the TripAdvisor Holdings Spin-Off).
Certain combined financial information for TripAdvisor Holdings, which is included in earnings (loss) from
discontinued operations, is as follows (amounts in millions):
Revenue
Earnings (loss) before income taxes
Income tax (expense) benefit
Earnings (loss) attributable to Liberty shareholders
Year ended December 31,
2014
$
$
$
$
883
68
(20)
(1)
On November 4, 2016, Liberty completed the Expedia Holdings Split-Off. Expedia Holdings is comprised of, among
other things, Liberty’s former interest in Expedia, Inc. and Liberty’s former wholly-owned subsidiary Bodybuilding. Liberty
views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued operations
presentation. Based on a quantitative analysis, the split-off of Liberty’s interest in Expedia represents a strategic shift that has
a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by
Expedia. Accordingly, the consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
in Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off does not
have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The
disposition of Bodybuilding does not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not
presented as a discontinued operation in the consolidated financial statements of Liberty. See “Disposals – Not Presented as
Discontinued Operations” below for additional information regarding Bodybuilding.
Prior to the Expedia Holdings Split-Off, Liberty accounted for the investment in Expedia as an equity method affiliate
and recorded our share of Expedia’s earnings (losses) in our consolidated statements of operations. Accordingly, Expedia’s
assets, liabilities and results of operations were not included in Liberty’s consolidated financial statements. Certain financial
information for Expedia for the periods prior to the Expedia Holdings Split-Off is as follows:
Current assets
Total assets
Current liabilities
Total liabilities
Equity
Operating income
Gain on sale of business
Income tax (expense) benefit
Net earnings (loss) attributable to Expedia shareholders
December 31,
2015
amounts in millions
2,976
$
15,486
$
5,926
$
10,556
$
4,930
$
Years Ending
December 31,
2015
2014
amounts in millions
$
$
$
$
414
509
(203)
764
518
—
(92)
398
Certain financial information for Liberty’s investment in Expedia, which is included in the discontinued operations line
items of the consolidated Liberty balance sheets as of December 31, 2015, is as follows (amounts in millions):
Investments in affiliates, accounted for using the equity method
Deferred income tax liabilities
December 31, 2015
$
$
927
285
Certain financial information for Liberty’s investment in Expedia, which is included in earnings (loss) from discontinued
operations, is as follows (amounts in millions):
Earnings (loss) before income taxes
Income tax (expense) benefit
Years ended December 31,
2016
2015
2014
24
(4)
437
(157)
61
(21)
$
$
II-53
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The combined impact from discontinued operations, discussed above, is as follows:
Basic earnings (loss) from discontinued operations attributable to Liberty
shareholders per common share (note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted earnings (loss) from discontinued operations attributable to Liberty
shareholders per common share (note 3):
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
$
$
$
$
Years ended December 31,
2016
2015
2014
NA
0.15
NA
1.97
(0.03)
0.62
NA
0.15
NA
1.96
(0.03)
0.61
The assets and liabilities included in the TripAdvisor Holdings Spin-Off, and their resulting impacts on the attributed
consolidated statements of operations, were included in discontinued operations based on which group owned the assets at
the time of the TripAdvisor Holdings Spin-Off.
Disposals – Not Presented as Discontinued Operations
Provide was included in the Corporate and other segment prior to the sale of Provide to FTD on December 31, 2014 in
exchange for cash and shares of FTD common stock representing approximately 35% of the combined company (see note 9
for additional information related to this transaction). Subsequent to this transaction, the Company’s interest in FTD,
accounted for under the equity method, is included in Corporate and other. Given Liberty’s significant continuing
involvement with FTD, Provide is not presented as a discontinued operation in the Company’s consolidated financial
statements. Included in revenue in the accompanying consolidated statements of operations is $666 million for the year
ended December 31, 2014, related to Provide. Included in net earnings (loss) in the accompanying consolidated statements of
operations are losses of $10 million for the year ended December 31, 2014, related to Provide.
On June 30, 2015, Liberty sold Backcountry for aggregate consideration, including assumption of debt, amounts held in
escrow, and a noncontrolling interest, of approximately $350 million. The sale resulted in a $105 million gain, which is
included in “Gains (losses) on transactions, net” in the accompanying consolidated statements of operations. Backcountry is
not presented as a discontinued operation as the sale did not represent a strategic shift that has a major effect on Liberty’s
operations and financial results. Included in revenue in the accompanying consolidated statements of operations is $227
million and $471 million for the years ended December 31, 2015 and 2014, respectively, related to Backcountry. Included in
net earnings (loss) in the accompanying consolidated statements of operations are losses of $3 million and earnings of $1
million for the years ended December 31, 2015 and 2014, respectively, related to Backcountry.
On July 22, 2016, Liberty completed the CommerceHub Spin-Off. CommerceHub is included in the Corporate and
other segment through July 22, 2016 and is not presented as a discontinued operation as the CommerceHub Spin-Off did not
represent a strategic shift that had a major effect on Liberty’s operations and financial results. Included in revenue in the
accompanying consolidated statements of operations is $51 million, $89 million and $66 million for the years ended
December 31, 2016, 2015 and 2014, respectively, related to CommerceHub. Included in net earnings (loss) in the
accompanying consolidated statements of operations are earnings of $5 million, losses of $10 million and earnings of $6
million for the years ended December 31, 2016, 2015 and 2014, respectively, related to CommerceHub. Included in total
assets in the accompanying consolidated balance sheets as of December 31, 2015 is $115 million related to CommerceHub.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
As discussed above, on November 4, 2016, Liberty completed the Expedia Holdings Split-Off. Although Liberty’s
interest in Expedia has been presented as a discontinued operation, Bodybuilding is not presented as a discontinued operation
in the consolidated financial statements of Liberty. Bodybuilding is included in the Corporate and other segment through
November 4, 2016. Included in revenue in the accompanying consolidated statements of operations is $355 million, $464
million and $455 million for the years ended December 31, 2016, 2015 and 2014, respectively, related to Bodybuilding.
Included in net earnings (loss) in the accompanying consolidated statements of operations are earnings of $6 million, $3
million and $5 million for the years ended December 31, 2016, 2015 and 2014, respectively, related to Bodybuilding.
Included in total assets in the accompanying consolidated balance sheets as of December 31, 2015 is $198 million related to
Bodybuilding.
(7) Assets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to
valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active
markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2
inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or
indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any recurring assets
or liabilities measured at fair value that would be considered Level 3.
The Company's assets and liabilities measured at fair value are as follows:
December 31, 2016
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
December 31, 2015
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Description
Cash equivalents
Short term marketable securities
Available-for-sale securities
Investment in Liberty Broadband
Debt
Total
625
$
$
—
$ 1,846
$ 3,161
$ 1,667
(Level 2)
Total
amounts in millions
— 2,225
—
910
— 1,294
NA
—
1,667 2,480
625
—
1,846
3,161
—
2,225
331
1,287
NA
—
—
579
7
NA
2,480
The majority of the Company's Level 2 financial assets and liabilities are debt instruments with quoted market prices that
are not considered to be traded on "active markets," as defined in GAAP. Accordingly, the debt instruments are reported in
the foregoing table as Level 2 fair value.
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Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the
following:
Years ended December 31,
2016
2015 2014
Fair Value Option Securities - AFS
Fair Value Option Securities - Liberty Broadband
Exchangeable senior debentures
Other financial instruments
$
amounts in millions
723
84
761 NA
30
(308)
—
(1)
114
$ 1,175
173
NA
(230)
—
(57)
(8) Investments in Available-for-Sale Securities and Other Cost Investments
All marketable equity and debt securities held by the Company are classified as AFS and are carried at fair value
generally based on quoted market prices. GAAP permits entities to choose to measure many financial instruments, such as
AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the
entity's statements of operations (the "fair value option"). Liberty has elected the fair value option for those of its AFS
securities which it considers to be non-strategic ("Fair Value Option Securities"). Accordingly, changes in the fair value of
Fair Value Option Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on
financial instruments in the accompanying consolidated statements of operations.
Investments in AFS securities, the majority of which are considered Fair Value Option Securities and other cost
investments, are summarized as follows:
QVC Group
Other investments
Total attributed QVC Group
Ventures Group
Charter (1)
Interval (2)
Time Warner (3)
TWC (1)
Other investments
Total attributed Ventures Group
Consolidated Liberty
December 31,
2016
December 31,
2015
amounts in millions
$
$
4
4
1,543
302
1
NA
72
1,918
1,922
4
4
NA
NA
284
994
71
1,349
1,353
(1)As discussed in note 2, in connection with the merger of Legacy Charter and TWC, Liberty exchanged, in a tax-free
transaction, its shares of TWC common stock for shares of Charter Class A common stock, on a one-for-one basis, and
Liberty has granted to Liberty Broadband a proxy and a right of first refusal with respect to the shares of Charter Class A
common stock held by Liberty after the exchange.
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Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(2)On May 12, 2016, Interval completed an acquisition which was accomplished, in part, through the issuance of additional
Interval shares. As a result of the share issuance, Liberty’s ownership interest in Interval was reduced from 28.7% to
12.8%. Prior to the transaction, Interval was accounted for as an equity method investment. As a result of the transaction,
Liberty does not have ability to exercise significant influence. Accordingly, Interval is classified as available-for-sale and
is carried at fair value. The Company recognized a dilution gain of $65 million related to Interval that is reflected in the
Other, net line item in the consolidated statements of operations for the year ended December 31, 2016.
(3)During the year ended December 31, 2016, Liberty sold approximately 4 million shares of Time Warner common stock
for proceeds of $343 million.
(9) Investments in Affiliates Accounted for Using the Equity Method
Liberty has various investments accounted for using the equity method. The following table includes Liberty's carrying
amount and percentage ownership of the more significant investments in affiliates at December 31, 2016 and the carrying
amount at December 31, 2015:
December 31, 2016
Percentage Market Carrying
ownership
value
amount
December 31, 2015
Carrying
amount
QVC Group
HSN (1)
Other
Total QVC Group
Ventures Group
FTD
Other (2)
Total Ventures Group
Consolidated Liberty
dollars in millions
38 % $ 687 $
various
NA
37 % $ 243
NA
various
$
184
40
224
216
141
357
581
165
43
208
267
239
506
714
The following table presents Liberty's share of earnings (losses) of affiliates:
QVC Group
HSN
Other
Total QVC Group
Ventures Group
FTD (3)
Other (2)
Total Ventures Group
Consolidated Liberty
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
48
(6)
42
(41)
(69)
(110)
(68)
64
(9)
55
(83)
(150)
(233)
(178)
60
(9)
51
—
(70)
(70)
(19)
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Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(1)HSN paid dividends of $28 million, $228 million, and $22 million during the years ended December 31, 2016, 2015 and
2014, respectively, which were recorded as reductions to the investment balances, and recorded as a cash inflow from
operations in the Cash receipts from returns on equity investments line item in the consolidated statements of cash
flows. Dividends from HSNi during the year ended December 31, 2015 included a special dividend of $10 per share
from which Liberty received approximately $200 million in cash, which was recorded as a cash inflow from investing
activities in the Cash receipts from returns of equity investments line item in the consolidated statements of cash flows.
(2)The Other category for the Ventures Group is comprised of investments in LendingTree, alternative energy investments
and other investments. The alternative energy investments generally operate at a loss but provide favorable tax attributes
recorded through the income tax (expense) benefit line item in the consolidated statements of operations. During the year
ended December 31, 2015, Liberty recorded an impairment of approximately $98 million, based on a discounted cash
flow valuation (Level 3), related to one of its alternative energy investments which has underperformed operationally.
(3)The carrying value of Liberty’s investment in FTD was impaired to the fair value (based on the closing price (Level 1)) as
of December 31, 2015.
Investment in Liberty Broadband
As discussed in note 2, in connection with the merger of Charter and TWC, on May 18, 2016, Liberty invested $2.4
billion in Liberty Broadband Series C nonvoting shares. As of December 31, 2016, Liberty has a 23% economic ownership
interest in Liberty Broadband. Due to overlapping boards of directors and management, Liberty has been deemed to have
significant influence over Liberty Broadband for accounting purposes, even though Liberty does not have any voting rights.
Liberty has elected to apply the fair value option for its investment in Liberty Broadband (Level 1) as it is believed that the
Company’s investors value this investment based on the trading price of Liberty Broadband. Liberty recognizes changes in
the fair value of its investment in Liberty Broadband in realized and unrealized gains (losses) on financial instruments, net in
the consolidated statements of operations.
(10) Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill are as follows:
Balance at January 1, 2015
Acquisitions
Sale of subsidiary
Foreign currency translation adjustments
Balance at December 31, 2015
Acquisition (1)
Disposition (2)
Foreign currency translation adjustments
Balance at December 31, 2016
II-58
QVC
zulily
Corporate
and Other Total
amounts in millions
$ 5,206
—
—
(57)
5,149
—
—
(39)
$ 5,110
—
860
—
—
860
57
—
—
917
198
10
(105)
—
103
—
(78)
—
25
5,404
870
(105)
(57)
6,112
57
(78)
(39)
6,052
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(1)Subsequent to December 31, 2015, the preliminary purchase price allocation for the zulily acquisition was adjusted,
resulting in a $57 million increase to goodwill.
(2)As discussed in note 6, Liberty completed the CommerceHub Spin-Off on July 22, 2016, resulting in a $21 million
decrease to goodwill. In addition, as discussed in note 6, Liberty completed the Expedia Holdings Split-Off on November
4, 2016, resulting in a $57 million decrease to goodwill related to Bodybuilding.
Goodwill recognized from acquisitions primarily relates to assembled workforces, website community and other
intangible assets that do not qualify for separate recognition.
As presented in the accompanying consolidated balance sheets, trademarks is the other significant indefinite lived
intangible asset.
Intangible Assets Subject to Amortization
Intangible assets subject to amortization are comprised of the following:
Television distribution rights
Customer relationships
Other
Total
December 31, 2016
December 31, 2015
Gross
carrying
amount
$
$
2,279
2,910
965
6,154
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
amounts in millions
Net
Accumulated
amortization
carrying
amount
(2,095)
(2,394)
(660)
(5,149)
184
516
305
1,005
2,259
2,950
1,077
6,286
(1,920)
(2,141)
(578)
(4,639)
339
809
499
1,647
The weighted average life of these amortizable intangible assets was approximately 9 years, at the time of
acquisition. However, amortization is expected to match the usage of the related asset and will be on an accelerated basis as
demonstrated in table below.
Amortization expense for intangible assets with finite useful lives was $703 million, $550 million and $504 million for
the years ended December 31, 2016, 2015 and 2014, respectively. Based on its amortizable intangible assets as of
December 31, 2016, Liberty expects that amortization expense will be as follows for the next five years (amounts in
millions):
2017
2018
2019
2020
2021
Impairments
$
$
$
$
$
518
252
122
63
50
As of December 31, 2016 accumulated goodwill impairment losses for certain e-commerce companies was $87 million.
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Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(11) Debt
Debt is summarized as follows:
QVC Group
Corporate level notes and debentures
8.5% Senior Debentures due 2029
8.25% Senior Debentures due 2030
1% Exchangeable Senior Debentures due 2043
Subsidiary level notes and facilities
QVC 3.125% Senior Secured Notes due 2019
QVC 5.125% Senior Secured Notes due 2022
QVC 4.375% Senior Secured Notes due 2023
QVC 4.85% Senior Secured Notes due 2024
QVC 4.45% Senior Secured Notes due 2025
QVC 5.45% Senior Secured Notes due 2034
QVC 5.95% Senior Secured Notes due 2043
QVC Bank Credit Facilities
Other subsidiary debt
Deferred loan costs
Total QVC Group
Ventures Group
Corporate level debentures
4% Exchangeable Senior Debentures due 2029
3.75% Exchangeable Senior Debentures due 2030
3.5% Exchangeable Senior Debentures due 2031
0.75% Exchangeable Senior Debentures due 2043
1.75% Exchangeable Senior Debentures due 2046
Subsidiary level notes and facilities
Total Ventures Group
Total consolidated Liberty debt
Less debt classified as current
Total long-term debt
Exchangeable Senior Debentures
Outstanding
principal
December 31, December 31, December 31,
2016
amounts in millions
Carrying value
2015
2016
$
287
504
1
400
500
750
600
600
400
300
1,896
174
$
6,412
$
$
$
435
436
337
1
750
—
1,959
8,371
285
501
—
399
500
750
600
599
399
300
1,896
174
(28)
6,375
276
267
316
3
805
—
1,667
8,042
(876)
7,166
285
501
349
399
500
750
600
599
399
300
1,815
72
(34)
6,535
257
275
312
1,287
NA
41
2,172
8,707
(1,226)
7,481
Each $1,000 original principal amount of the 1% Exchangeable Senior Debentures due 2043 (the “HSNi
Exchangeables”) is initially exchangeable for 13.4580 shares of common stock of HSNi (the "HSNi Reference Shares").
Each of the HSNi Exchangeables is exchangeable at the option of the holder, for certain triggering events (primarily the
increase in an average trading period at the end of the quarter for HSNi Reference Shares above 130% or below 98% of the
adjusted principal amount at the end of a quarter) after the calendar quarter ended March 31, 2014, upon achieving certain
trading prices of the underlying HSNi Reference Shares. Liberty Interactive LLC (“Liberty LLC”) will make an additional
distribution on the HSNi Exchangeables if HSNi makes a distribution of cash (an “Excess Regular Cash
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Dividend”) in excess of $0.18, currently paid by the HSNi securities (other than publicly traded common equity securities) or
other property with respect to the HSNi Reference Shares.
In July 2016, Liberty delivered a notice to holders of the HSNi Exchangeables notifying them of their right to surrender
their HSNi Exchangeables for purchase by Liberty pursuant to their purchase option under the indenture. The purchase
option entitled each holder to require Liberty to purchase on October 5, 2016 all or any part of such holder’s HSNi
Exchangeables at a purchase price equal to the adjusted principal amount per $1,000 original principal amount of debentures,
plus accrued and unpaid interest to, but excluding, October 5, 2016, plus any final period distribution. On October 5, 2016,
Liberty paid approximately $345 million to holders that exercised their right to surrender their HSNi Exchangeables. Liberty
funded the purchase with borrowings under the Third Amended and Restated Credit Agreement (as defined below). A de
minimus amount of debentures are outstanding at December 31, 2016.
Each $1,000 debenture of Liberty LLC's 4% Exchangeable Senior Debentures is exchangeable at the holder's option for
the value of 3.2265 shares of Sprint Corporation (“Sprint”) common stock and 0.7860 shares of CenturyLink, Inc.
("CenturyLink") common stock. Liberty LLC may, at its election, pay the exchange value in cash, Sprint and CenturyLink
common stock or a combination thereof. Liberty LLC, at its option, may redeem the debentures, in whole or in part, for cash
generally equal to the face amount of the debentures plus accrued interest.
Each $1,000 debenture of Liberty LLC's 3.75% Exchangeable Senior Debentures is exchangeable at the holder's option
for the value of 2.3578 shares of Sprint common stock and 0.5746 shares of CenturyLink common stock. Liberty LLC may,
at its election, pay the exchange value in cash, Sprint and CenturyLink common stock or a combination thereof. Liberty, at
its option, may redeem the debentures, in whole or in part, for cash equal to the face amount of the debentures plus accrued
interest.
Each $1,000 debenture of Liberty LLC's 3.5% Exchangeable Senior Debentures (the "Motorola Exchangeables") was
exchangeable at the holder's option for the value of 5.2598 shares of Motorola Solutions, Inc. and 4.6024 shares of Motorola
Mobility Holdings, Inc., as a result of Motorola Inc.'s separation of Motorola Mobility Holdings, Inc. ("MMI") in a 1 for 8
stock distribution, and the subsequent 1 for 7 reverse stock split of Motorola, Inc. (which has been renamed Motorola
Solutions, Inc. ("MSI")), effective January 4, 2011. MMI was acquired on May 22, 2012 for $40 per share in cash. Pursuant
to the indenture, the cash paid to shareholders in the MMI acquisition was to be paid to the holders of the Motorola
Exchangeables as an extraordinary distribution. Liberty LLC made a cash payment of $184.096 per debenture in the second
quarter of 2012 for a total payment of $111 million. The remaining exchange value is payable, at Liberty's option, in cash or
MSI stock or a combination thereof. Liberty LLC, at its option, may redeem the debentures, in whole or in part, for cash
generally equal to the adjusted principal amount of the debentures plus accrued interest. As a result of a cash distribution
made by Liberty LLC in 2007, the cash disbursement discussed above and various principal payments made to holders of the
Motorola Exchangeables, the adjusted principal amount of each $1,000 debenture is $577 as of December 31, 2016.
Each $1,000 original principal amount of the 0.75% Exchangeable Senior Debentures is exchangeable for a basket of
3.1648 shares of common stock of Charter, 5.1635 shares of common stock of Time Warner and 0.6454 shares of Time, Inc.,
which may change over time to include other publicly traded common equity securities that may be distributed on or in
respect of those shares of Charter and Time Warner (or into which any of those securities may be converted or
exchanged). This basket of shares for which each Debenture in the original principal amount of $1,000 may be exchanged is
referred to as the Reference Shares attributable to such Debenture, and to each issuer of Reference Shares as a reference
company. Each Debenture is exchangeable at the option of the holder at any time, upon which they will be entitled to receive
the Reference Shares attributable to such Debenture or, at the election of Liberty LLC, cash or a combination of
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Reference Shares and cash having a value equal to such Reference Shares. Upon exchange, holders will not be entitled to any
cash payment representing accrued interest or outstanding additional distributions.
During the year ended December 31, 2016, holders exchanged, under the terms of the debentures, approximately $523
million principal of the 0.75% Exchangeable Senior Debentures due 2043 and Liberty made cash payments of approximately
$1,181 million to settle the obligations. In addition, in conjunction with the Liberty Broadband transaction (see note 9), an
extraordinary distribution of approximately $325 million was paid to holders of the 0.75% Exchangeable Senior Debentures
due 2043.
In August 2016, Liberty issued $750 million principal amount of new senior exchangeable debentures due September
2046 which bear interest at an annual rate of 1.75%. Each $1,000 debenture is exchangeable at the holder’s option for the
value of 2.9317 shares of Charter Class A common stock. Liberty may, at its election, pay the exchange value in cash,
Charter Class A common stock or a combination thereof. The number of shares of Charter Class A common stock
attributable to a debenture represents an initial exchange price of approximately $341.10 per share. On October 5, 2023,
Liberty, at its option, may redeem the debentures, in whole or in part, for cash generally equal to the face amount of the
debentures plus accrued interest.
Liberty has elected to account for all of its Exchangeables using the fair value option. Accordingly, changes in the fair
value of these instruments are recognized as unrealized gains (losses) in the statements of operations. Liberty will review the
triggering events on a quarterly basis to determine whether a triggering event has occurred to require current classification of
certain Exchangeables, see additional discussion below.
Liberty has sold, split-off or otherwise disposed of all of its shares of MSI, Sprint and CenturyLink common stock which
underlie the respective Exchangeable Senior Debentures. Because such exchangeable debentures are exchangeable at the
option of the holder at any time and Liberty can no longer use owned shares to redeem the debentures, Liberty has classified
for financial reporting purposes the portion due 2043 of the debentures that could be redeemed for cash as a current
liability. The 0.75% Exchangeable Senior Debentures are classified as current as of December 31, 2016. Exchangeable
Senior Debentures classified as current totaled $862 million at December 31, 2016. Although such amount has been
classified as a current liability for financial reporting purposes, the Company believes the probability that the holders of such
instruments will exchange a significant principal amount of the debentures prior to maturity is unlikely.
Interest on the Company's exchangeable debentures is payable semi-annually based on the date of issuance. At maturity,
all of the Company's exchangeable debentures are payable in cash.
Senior Debentures
Interest on the 8.5% Senior Debentures due 2029 and the 8.25% Senior Debentures due 2030 (the “Senior Debentures”)
is payable semi-annually based on the date of issuance.
The Senior Debentures are stated net of an aggregate unamortized discount of $5 million at December 31, 2016 and
2015. Such discount is being amortized to interest expense in the accompanying consolidated statements of operations.
QVC Senior Secured Notes
On March 18, 2014, QVC issued $400 million principal amount of 3.125% Senior Secured Notes due 2019 at an issue
price of 99.828% and $600 million principal amount of 4.85% Senior Secured Notes due 2024 at an issue price of 99.927%
(collectively, the “March Notes”). The March Notes are secured by the capital stock of QVC and certain of QVC’s
subsidiaries and have equal priority to QVC’s senior secured credit facility. The net proceeds from the March Notes
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
offerings were used to repay indebtedness under QVC’s senior secured credit facility and for working capital and other
general corporate purposes.
On August 21, 2014, QVC issued $600 million principal amount of 4.45% Senior Secured Notes due 2025 at an issue
price of 99.860% and $400 million principal amount 5.45% Senior Secured Notes due 2034 at an issue price of 99.784%
(collectively, the “August Notes”). The August Notes are secured by the capital stock of QVC and certain of QVC’s
subsidiaries and have equal priority to QVC’s senior secured credit facility. The net proceeds from the August Notes
offerings were used for the redemption of QVC’s 7.5% Senior Secured Notes due 2019 (the “Redemption”) on September 9,
2014 and for working capital and other general corporate purposes.
As a result of the Redemption, QVC incurred an extinguishment loss of $48 million for the year ended December 31,
2014. Losses on early extinguishment of debt are recorded in other, net in the accompanying consolidated statement of
operations for the year ended December 31, 2014.
During prior years, QVC issued $500 million principal amount of 7.375% Senior Secured Notes due 2020 at par, $500
million principal amount of 5.125% Senior Secured Notes due 2022 at par, $750 million principal amount of 4.375% Senior
Secured Notes due 2023 at par and $300 million principal amount of 5.95% Senior Secured Notes due 2043 at par.
On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured
Notes due 2020, whereby holders received consideration of $1,036.88 for each $1,000 of principal tendered. As a result of
the redemption, a $21 million extinguishment loss is included in other, net in the accompanying consolidated statement of
operations for the year ended December 31, 2015.
QVC was in compliance with all of its debt covenants related to its outstanding senior notes at December 31, 2016.
QVC Bank Credit Facilities
On March 9, 2015, QVC amended and restated its senior secured credit facility, which is a multi-currency facility that
provided for a $2.25 billion revolving credit facility with a $250 million sub-limit for standby letters of credit and $1.5 billion
of uncommitted incremental revolving loan commitments or incremental term loans.
On June 23, 2016, QVC amended and restated its senior secured credit facility (the “Third Amended and Restated Credit
Agreement”) with zulily as co-borrower (the “Borrowers”). The Third Amended and Restated Credit Agreement is a multi-
currency facility that provides for a $2.65 billion revolving credit facility, with a $300 million total sub-limit for standby
letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The
Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or zulily,
with an additional $50 million sub-limit for standing letters of credit. The remaining $2.25 billion and any incremental loans
may be borrowed only by QVC. The borrowers may elect that the loans extended under the senior secured credit facility bear
interest at a rate per annum equal to the ABR or LIBOR, as each is defined in the senior secured credit facility agreement,
plus a margin of 0.25% to 1.75% depending on various factors. Each loan may be prepaid in whole or in part without penalty
other than customary breakage costs. No mandatory prepayments are required other than when borrowings and letter of credit
usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, all of its loans must be repaid and its
letters of credit cash collateralized. Any amounts prepaid on the revolving facility may be reborrowed. The facility matures
on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020.
Borrowings under the facility may be accelerated following certain customary events of default. The purpose of the
amendment was to, among other things, extend the maturity of QVC’s senior secured credit facility, provide zulily the
opportunity to borrow on the senior secured credit facility and lower the interest rate on borrowings.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The payment and performance of the borrowers’ obligations (including zulily’s obligations) under the Third Amended
and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third
Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit
Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of QVC’s equity interests. The payment and
performance of the borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also
guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit
Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.
The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including
certain restrictions on QVC and zulily and each of their restricted subsidiaries (subject to certain exceptions) with respect to,
among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or
investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating
or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting
subsidiary distributions; limiting QVC’s consolidated leverage ratio, which is defined in QVC’s senior secured credit facility
as QVC’s consolidated total debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period; and limiting the
borrowers’ combined consolidated leverage ratio, which is defined in QVC’s senior secured credit facility as QVC and
zulily’s combined debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period. Liberty defines Adjusted
OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-
based compensation).
The interest rate on borrowings outstanding under the Third Amended and Restated Credit Agreement was 2.2% at
December 31, 2016. Availability under the Third Amended and Restated Credit Agreement at December 31, 2016 was $744
million, net of $10 million of standby letters of credit.
QVC Interest Rate Swap Arrangement
During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional
amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The
swap arrangement does not qualify as a cash flow hedge under GAAP. Accordingly, changes in the fair value of the swap are
reflected in realized and unrealized gains or losses on financial instruments in the accompanying consolidated statements of
operations.
Other Subsidiary Debt
Other subsidiary debt at December 31, 2016 is comprised of capitalized satellite transponder lease obligations and bank
debt of certain subsidiaries.
Debt Covenants
Liberty, QVC and other subsidiaries were in compliance with all debt covenants at December 31, 2016.
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Five Year Maturities
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The annual principal maturities of Liberty's debt, based on stated maturity dates, for each of the next five years is as
follows (amounts in millions):
2017
2018
2019
2020
2021
Fair Value of Debt
$
$
$
$
$
31
33
432
31
1,927
Liberty estimates the fair value of its debt based on the quoted market prices for the same or similar issues or on the
current rate offered to Liberty for debt of the same remaining maturities. The fair value, based on quoted prices of
instruments but not considered to be active markets (Level 2), of Liberty's publicly traded debt securities that are not reported
at fair value in the accompanying consolidated balance sheets is as follows (amounts in millions):
Senior debentures
QVC senior secured notes
December 31,
2016
853
3,496
$
$
2015
809
3,374
Due to the variable rate nature, Liberty believes that the carrying amount of its subsidiary debt not discussed above
approximated fair value at December 31, 2016.
(12) Income Taxes
Income tax benefit (expense) consists of:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
$
$
(40)
(12)
(73)
(125)
(444)
(33)
4
(473)
(598)
(188)
(26)
(74)
(288)
74
21
8
103
(185)
(155)
(32)
(110)
(297)
76
(21)
5
60
(237)
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The following table presents a summary of our domestic and foreign earnings from continuing operations before income
taxes:
Domestic
Foreign
Total
Years ended December 31,
2016
2015
2014
amounts in millions
$ 1,684
168
$ 1,852
674
142
816
615
160
775
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 35% as
a result of the following:
Computed expected tax benefit (expense)
State and local income taxes, net of federal income taxes
Foreign taxes, net of foreign tax credits
Sale of consolidated subsidiary
Impairment of intangible assets not deductible for tax purposes
Dividends received deductions
Alternative energy tax credits and incentives
Change in valuation allowance affecting tax expense
Impact of change in state rate on deferred taxes
Other, net
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
(649)
(26)
(9)
(1)
—
9
94
(16)
1
(1)
(598)
(286)
(15)
(4)
—
—
51
61
6
(7)
9
(185)
(271)
(6)
(2)
14
(3)
6
58
(2)
(26)
(5)
(237)
Income tax expense was lower than the U.S. statutory tax rate of 35% in 2016 due to tax benefits derived from Liberty’s
alternative energy tax credits and incentives. Income tax expense was lower than the U.S. statutory tax rate of 35% in 2015
due to the receipt of taxable dividends that are subject to a dividends received deduction. During 2014, Liberty changed its
estimate of the effective state tax rate used to measure its net deferred tax liabilities, based on expected changes to the
Company’s state apportionment factors. The change in 2014 was caused by the sale of a consolidated subsidiary (Provide) on
December 31, 2014. In 2014, the rate change required an adjustment to the recognized deferred taxes at the corporate
level. During 2015 and 2014, Liberty offset federal tax liabilities with tax credits derived from its alternative energy
investments.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and
deferred income tax liabilities are presented below:
Deferred tax assets:
Net operating and capital loss carryforwards
Foreign tax credit carryforwards
Accrued stock compensation
Other accrued liabilities
Other future deductible amounts
Deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Investments
Intangible assets
Discount on exchangeable debentures
Deferred gain on debt retirements
Other
Deferred tax liabilities
Net deferred tax liabilities
December 31,
2016
2015
amounts in millions
$
$
123
134
56
118
144
575
(64)
511
1,057
1,540
1,404
129
17
4,147
3,636
99
72
83
165
163
582
(48)
534
598
1,788
1,148
193
24
3,751
3,217
The Company's valuation allowance increased $16 million in 2016. The entire change in valuation allowance affected
tax expense.
At December 31, 2016, Liberty had net operating losses (on a tax effected basis) and foreign tax credit carryforwards for
income tax purposes aggregating approximately $123 million and $134 million, respectively, which will begin to expire in
2017 and beyond if not utilized to reduce domestic, state or foreign income tax liabilities in future periods. These net
operating losses and foreign tax credit carryforwards are expected to be utilized prior to expiration, except for $60 million of
net operating losses. In addition, Liberty has $4 million of other deferred tax assets which may not ultimately be realized by
the Company.
A reconciliation of unrecognized tax benefits is as follows:
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute and settlements
Balance at end of year
Years ended December 31,
2016 2015 2014
amounts in millions
$ 104
16
—
(26)
(22)
72
$
136
14
—
(12)
(34)
104
124
16
20
(3)
(21)
136
As of December 31, 2016, 2015 and 2014, the Company had recorded tax reserves of $72 million, $104 million and
$136 million, respectively, related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
recognized for financial statement purposes, $50 million, $47 million and $68 million for the years ended December 31,
2016, 2015 and 2014, respectively, would be reflected in the Company's tax expense and affect its effective tax
rate. Liberty's estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.
The Company has tax positions for which the amount of related unrecognized tax benefits could change during 2017. The
amount of unrecognized tax benefits related to these issues could change as a result of potential settlements, lapsing of statute
of limitations and revisions of estimates. It is reasonably possible that the amount of the Company's gross unrecognized tax
benefits may decrease within the next twelve months by up to $6 million.
As of December 31, 2016, the Company's tax years prior to 2013 are closed for federal income tax purposes, and the IRS
has completed its examination of the Company's 2013 and 2014 tax year. The Company's 2015 and 2016 tax years are being
examined currently as part of the IRS's Compliance Assurance Process ("CAP") program. Various states are currently
examining the Company's prior years state income tax returns. QVC is currently under audit in the U.K. and Germany. The
Company agreed to an assessment related to an examination in Germany. The Company believes that amounts paid in
connection with that assessment will be creditable against its U.S. federal income tax liability.
The Company recorded $17 million of accrued interest and penalties related to uncertain tax positions as of each of
December 31, 2016 and 2015.
(13) Stockholders' Equity
Preferred Stock
Liberty's preferred stock is issuable, from time to time, with such designations, preferences and relative participating,
optional or other rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of such preferred stock adopted by Liberty's Board of Directors. As of December 31,
2016, no shares of preferred stock were issued.
Common Stock
Series A QVC Group and Liberty Ventures common stock has one vote per share, and Series B QVC Group and Liberty
Ventures common stock has ten votes per share. Each share of the Series B common stock is exchangeable at the option of
the holder for one share of Series A common stock of the same group. The Series A and Series B common stock participate
on an equal basis with respect to dividends and distributions.
At the Annual Meeting of Stockholders held on June 2, 2015, the Company’s stockholders approved an amendment to
the Restated Certificate of Incorporation that increased (i) the total number of shares of the Company’s capital stock which
the Company will have the authority to issue to 9,015 million shares, (ii) the number of shares of the Company’s capital stock
designated as “Common Stock” to 8,965 million shares and (iii) the number of shares of Common Stock designated as
“Series A Liberty Ventures Common Stock,” “Series B Liberty Ventures Common Stock” and “Series C Liberty Ventures
Common Stock” to 400 million shares, 15 million shares and 400 million shares, respectively.
As of December 31, 2016, Liberty reserved for issuance upon exercise of outstanding stock options approximately 29.6
million shares of Series A QVC Group common stock and approximately 1.5 million shares of Series B QVC Group
common stock. As of December 31, 2016, Liberty reserved for issuance upon exercise of outstanding stock options
approximately 2.0 million shares of Series A Liberty Ventures common stock and approximately 1.0 million shares of Series
B Liberty Ventures common stock.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
In addition to the Series A and Series B QVC Group and Ventures common stock, there are 4 billion and 400 million
shares of Series C QVC Group and Ventures common stock authorized for issuance, respectively. As of December 31, 2016,
no shares of any Series C QVC Group and Ventures common stock were issued or outstanding.
As discussed in note 2, on February 27, 2014, Liberty’s board approved a two for one stock split of Series A and Series
B Liberty Ventures common stock, to be effected by means of a dividend. The stock split was done in order to bring Liberty
into compliance with a Nasdaq listing requirement regarding the minimum number of publicly held shares of the Series B
Liberty Ventures common stock. In the stock split, a dividend was paid on April 11, 2014 to holders of Series A and Series B
Liberty Ventures common stock of one share of Series A or Series B Liberty Ventures common stock for each share of Series
A or Series B Liberty Ventures common stock, respectively, held by them as of 5:00 pm, New York City time, on April 4,
2014.
Additionally, as discussed in note 2, on October 3, 2014, Liberty attributed from the QVC Group to the Ventures Group
its Digital Commerce businesses. Holders of QVC Group common shares received 0.14217 shares of Liberty Ventures
common shares for each share of QVC Group common shares held, as of the record date. The shares issued and
subsequently distributed to QVC Group common stock shareholders in the form of a dividend did not require retroactive
treatment.
On October 1, 2015, in conjunction with the acquisition of zulily, as discussed in note 5, Liberty issued 38.5 million
shares of Series A QVC Group Common Stock.
Additionally, as discussed in note 1, on November 4, 2016, Liberty completed the Expedia Holdings Split-Off. The
Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A
Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series A common stock and (ii) 0.4 of each
outstanding share of Liberty’s Series B Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series B
common stock, in each case, with cash paid in lieu of any fractional shares of Liberty Ventures common stock or Expedia
Holdings common stock (after taking into account all of the shares owned of record by each holder thereof, as applicable).
Purchases of Common Stock
During the year ended December 31, 2014 the Company repurchased 27,356,993 shares of Series A QVC Group
common stock for aggregate cash consideration of $785 million.
During the year ended December 31, 2015 the Company repurchased 28,134,498 shares of Series A QVC Group
common stock for aggregate cash consideration of $785 million.
During the year ended December 31, 2016 the Company repurchased 34,836,196 shares of Series A QVC Group
common stock for aggregate cash consideration of $799 million.
All of the foregoing shares were repurchased pursuant to a previously announced share repurchase program and have
been retired and returned to the status of authorized and available for issuance.
In connection with the Expedia Holdings Split-Off, holders of Liberty Ventures common stock were paid cash in lieu
of fractional shares of Series A and Series B Liberty Ventures common stock. In order to fund the cash payments made to
holders of shares of Series B Liberty Ventures common stock, the fractional shares that would have otherwise been issued
to those holders were aggregated into an immaterial number of shares of Series B Liberty Ventures common stock by the
Company’s transfer agent and were repurchased by Liberty.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(14) Related Party Transactions with Officers and Directors
Chief Executive Officer Compensation Arrangement
In December 2014, the Compensation Committee of Liberty approved a compensation arrangement, including term
options discussed in note 15, for its President and Chief Executive Officer (the "CEO"). The arrangement provides for a five
year employment term beginning January 1, 2015 and ending December 31, 2019, with an annual base salary of $960,750,
increasing annually by 5% of the prior year's base salary, and an annual target cash bonus equal to 250% of the applicable
year's annual base salary. The arrangement also provides that, in the event the CEO is terminated for "cause," he will be
entitled only to his accrued base salary and any amounts due under applicable law and he will forfeit all rights to his unvested
term options. If, however, the CEO is terminated by Liberty without cause or if he terminates his employment for “good
reason,” the arrangement provides for him to receive his accrued base salary, his accrued but unpaid bonus and any amounts
due under applicable law, a severance payment of 1.5 times his base salary during the year of his termination, a payment
equal to $11,750,000 pro rated based upon the elapsed number of days in the calendar year of termination, a payment equal to
$17.5 million, and for his unvested term options to generally vest pro rata based on the portion of the term elapsed through
the termination date plus 18 months and for all vested and accelerated options to remain exercisable until their respective
expiration dates. If the CEO terminates his employment without “good reason,” he will be entitled to his accrued base salary,
his accrued but unpaid bonus and any amounts due under applicable law and a payment of the $11,750,000 and for his
unvested term options to generally vest pro rata based on the portion of the term elapsed through the termination date and all
vested and accelerated options to remain exercisable until their respective expiration dates. Lastly, in the case of the CEO's
death or his disability, the arrangement provides that he will be entitled only to his accrued base salary and any amounts due
under applicable law, a payment of 1.5 times his base salary during that year, a payment equal to $11,750,000 pro rated based
upon the elapsed number of days in the calendar year of termination, a payment equal to $17.5 million and for his unvested
term options to fully vest and for his vested and accelerated term options to remain exercisable until their respective
expiration dates.
Pursuant to the CEO’s compensation arrangement, he will receive aggregate target equity awards to be allocated between
Liberty and Liberty Media in the amounts of $16 million with respect to calendar year 2015, $17 million with respect to
calendar year 2016, $18 million with respect to calendar year 2017, $19 million with respect to calendar year 2018 and $20
million with respect to calendar year 2019. In 2015, the CEO received annual performance-based options to purchase shares
of QVCB and LVNTB with a term of 7 years (the “Performance Options”) and performance-based restricted stock units with
respect to QVCB and LVNTB (the “Performance RSUs” and together with the Performance Options, the “Performance
Awards”) during the employment term. In 2016, he received 80% of the $17 million award in options that vested on
December 31, 2016 and 20% of the awards in Performance RSUs. Vesting of the Performance Awards will be determined
based on satisfaction of performance metrics that will be set by Liberty and Liberty Media’s respective compensation
committees in the first quarter of each applicable year, except that the CEO will forfeit his unvested Performance Awards if
his employment is terminated for any reason before the end of the applicable year. In addition, Liberty and Liberty Media’s
compensation committees may grant additional Performance Awards, with a value of up to 50% of the target amount
allocated to Liberty for the relevant year (the “Above Target Awards”), and the compensation committees may determine to
establish additional performance metrics with respect to such Above Target Awards.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(15) Stock-Based Compensation
Liberty - Incentive Plans
Pursuant to the Liberty Interactive 2016 Omnibus Incentive Plan (the “2016 Plan”), the Company may grant stock
options (“Awards”) to be made in respect of a maximum of 39.9 million shares of Series A and Series B QVC Group
common stock and Liberty Ventures common stock. Awards generally vest over 4-5 years and have a term of 7-10 years.
Liberty issues new shares upon exercise of equity awards.
In connection with the Expedia Holdings Split-Off in November 2016, all outstanding Series A and Series B Awards
with respect to Liberty Ventures common stock (a “Liberty Ventures Award”) were adjusted pursuant to the anti-dilution
provisions of the incentive plans under which the equity awards were granted, such that a holder of a Liberty Ventures Award
received:
I.
II.
An adjustment to the exercise price and the number of shares subject to the Liberty Ventures Award (as so adjusted, an
“Adjusted Liberty Ventures Award”) and
A corresponding equity award relating to shares of the corresponding series of Expedia Holdings common stock (an
“Expedia Holdings Award”)
The exercise prices of and number of shares subject to the new Expedia Holdings Award and the Adjusted Liberty
Ventures Award were determined based on (1) the exercise price and number of shares subject to the original Liberty
Ventures Award, (2) the redemption ratios used in the Expedia Holdings Split-Off, (3) the pre-Expedia Holdings Split-Off
trading price of Liberty Ventures common stock and (4) the relative post-Expedia Holdings Split-Off trading prices of Liberty
Ventures common stock and Expedia Holdings common stock, such that the pre-Expedia Holdings Split-Off intrinsic value of
the original Liberty Ventures Award was allocated between the new Expedia Holdings Award and the Adjusted Liberty
Ventures Award.
Following the Expedia Holdings Split-Off, employees of Liberty hold Awards in both Liberty Ventures common stock
and Expedia Holdings common stock. The compensation expense relating to employees of Liberty is recorded at Liberty.
In connection with the CommerceHub Spin-Off in July 2016, all outstanding Awards with respect to Liberty Ventures
common stock (an “Original Liberty Ventures Award”) were adjusted pursuant to the anti-dilution provisions of the incentive
plans under which the equity awards were granted, such that:
I. A holder of an Original Liberty Ventures Award who was a member of the board of directors or an officer of Liberty
holding the position of Vice President or above received (i) an adjustment to the exercise price and the number of
shares subject to the Original Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”) and (ii)
a corresponding equity award relating to shares of the corresponding series of CommerceHub common stock, as well
as Series C CommerceHub common stock (in each case, a “CommerceHub Award”); and
II. Each other holder of an Original Liberty Ventures Award received only an adjustment to the exercise price and the
number of shares subject to the Original Liberty Ventures Award (also referred to as an “Adjusted Liberty Ventures
Award”).
The exercise prices and number of shares subject to the Adjusted Liberty Ventures Awards and the CommerceHub
Awards were determined based on (1) the exercise prices and number of shares subject to the Liberty Ventures Award, (2) the
distribution ratios used in the CommerceHub Spin-Off, (3) the pre-CommerceHub Spin-Off trading price of the Liberty
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
Ventures common stock and (4) the post-CommerceHub Spin-Off trading prices of Liberty Ventures common stock and
CommerceHub common stock, such that all of the pre-CommerceHub Spin-Off intrinsic value of the Liberty Ventures Award
was allocated between the Adjusted Liberty Ventures Award and the CommerceHub Award, or fully to the Adjusted Liberty
Ventures Award. Following the CommerceHub Spin-Off, employees of Liberty may hold Awards in both Liberty Ventures
common stock and CommerceHub common stock. The compensation expense relating to employees of Liberty is recorded at
Liberty.
Except as described above, all other terms of an Adjusted Liberty Ventures Award, a new Expedia Holdings Award and a
new CommerceHub Award (including, for example, the vesting terms thereof) are in all material respects, the same as those
of the corresponding original Liberty Ventures Award.
The adjustments related to the Expedia Holdings Split-Off and the CommerceHub Spin-Off were considered
modifications under ASC 718 – Stock Compensation but did not result in incremental compensation expense.
In connection with the zulily acquisition in October 2015 (see note 5), outstanding awards to purchase shares of zulily
Class A and Class B common stock (a “zulily Award”) were exchanged for awards to purchase shares of Series A QVC
Group common stock (a “QVCA Award”). The exercise prices and number of shares subject to the QVCA Award were
determined based on (1) the exercise prices and number of shares subject to the zulily Award and (2) a conversion ratio
which was calculated using the acquisition exchange ratio, acquisition cash consideration, and pre-distribution trading price
of the Series A QVC Group common stock, such that all of the pre-distribution intrinsic value of the zulily Award was
allocated to the QVCA Award. The exchange of such awards was considered a modification under ASC 805 – Business
Combinations. A portion of the fair value of the replacement QVCA Awards was attributed to the consideration paid in the
acquisition. The remaining portion of the fair value will be recognized in the consolidated financial statements over the
remaining vesting period of each individual award.
In connection with the TripAdvisor Holdings Spin-Off during 2014, the holder of an outstanding Award to purchase
shares of Liberty Ventures Series A and Series B common stock on the record date (a “Previous Liberty Ventures Award”)
received an Award to purchase shares of the corresponding series of TripAdvisor Holdings common stock and an adjustment
to the exercise price and number of shares subject to the Previous Liberty Ventures Award (as so adjusted, an “Adjusted
Liberty Ventures Award”). Following the TripAdvisor Holdings Spin-Off, employees of Liberty hold Awards in both Liberty
Ventures common stock and TripAdvisor Holdings common stock. The compensation expense relating to employees of
Liberty is recorded at Liberty.
Additionally, outstanding stock options, relating to QVC Group common stock, were adjusted, using a similar
methodology as described above, in connection with the stock dividend related to the reattribution of the Digital Commerce
businesses from the QVC Group to the Ventures Group during October 2014.
Liberty – Grants
During the year ended December 31, 2016, Liberty granted:
· 2.9 million options, to QVC employees, to purchase shares of Series A QVC Group common stock which had a
weighted average grant-date fair value of $7.84 per share and vest semi-annually over 4 years.
· 433 thousand options, to zulily employees, to purchase shares of Series A QVC Group common stock which had a
weighted average grant-date fair value of $7.57 per share and vest between three to five years.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
· 421 thousand options, to Liberty employees, to purchase shares of Series A QVC Group common stock which had
a weighted average grant-date fair value of $8.02 per share and mainly vest 50% each on December 31, 2019 and
2020.
· 114 thousand options, to Liberty employees, to purchase shares of Series A Liberty Ventures common stock which
had a weighted average grant-date fair value of $12.25 per share and mainly vest 50% each on December 31, 2019
and 2020.
· 730 thousand and 209 thousand options of Series B QVC Group common stock and Series B Liberty Ventures
common stock, respectively, to the CEO of Liberty in connection with our CEO’s employment agreement. Such
options had a grant-date fair value of $7.47 per share and $12.48 per share, respectively, at the time they were
granted. Liberty also granted 53 thousand and 16 thousand performance-based restricted stock units of Series B
QVC Group common stock and Series B Liberty Ventures common stock, respectively. The restricted stock units
had a fair value of $25.11 per share and $38.79 per share, respectively, at the time they were granted. The options
vested on December 31, 2016, and the restricted stock units cliff vest in one year, subject to satisfaction of certain
performance objectives.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
During the year ended December 31, 2015, Liberty granted:
· 2.2 million options, primarily to QVC employees, to purchase shares of Series A QVC Group common stock which
had a weighted average grant-date fair value of $11.63 per share and mainly vest semi-annually over four years.
· 1.7 million options to QVC’s CEO in connection with a new compensation arrangement, to purchase shares of
Series A QVC Group common stock which had a weighted average grant-date fair value of $10.40 per share and
vest 50% on each of December 31, 2019 and 2020.
· 2.5 million options, to Liberty employees, to purchase shares of Series A QVC Group common stock which had a
weighted average grant-date fair value of $11.63 per share. 652 thousand of the options vest annually over 3 years
and 1.7 million of the options vest 50% on each of December 31, 2019 and 2020.
· 683 thousand options to purchase shares of Series A Liberty Ventures common stock which had a weighted average
grant-date fair value of $18.10 per share. Such options primarily vest 50% on each of December 31, 2019 and
2020.
· 132 thousand performance-based options of Series B QVC Group common stock and 135 thousand performance-
based options of Series B Liberty Ventures common stock to the CEO of Liberty in connection with our CEO’s
employment agreement. Such options had a grant-date fair value of $10.10 per share and $16.94 per share,
respectively, at the time they were granted. Liberty also granted 182 thousand and 13 thousand performance-based
restricted stock units of Series B QVC Group common stock and Series B Liberty Ventures common stock,
respectively. The restricted stock units had a fair value of $29.41 per share and $42.33 per share, respectively, at
the time they were granted. The performance-based options and restricted stock units cliff vested in March 2016
based on an amount determined by the compensation committee.
During the year ended December 31, 2014, Liberty granted:
· 1.9 million options, primarily to QVC employees, to purchase shares of Series A QVC Group common stock which
had a weighted average grant-date fair value of $12.04 per share and vest semi-annually over four years.
· 20 thousand options to purchase shares of Series A Liberty Ventures common stock which had a weighted average
grant-date fair value of $16.55 per share and vest quarterly over four years.
· 646 thousand options of Series B QVC Group common stock and 1.4 million options of Series B Liberty Ventures
common stock to the CEO of Liberty in connection with a new employment agreement (see note 14). Such options
had a weighted average grant-date fair value of $10.50 per share and $15.52 per share, respectively, and vest 50%
on each of December 24, 2018 and 2019.
The Company has calculated the grant-date fair value for all of its equity classified awards using the Black-Scholes-
Merton Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. For
grants made in 2016, 2015 and 2014, the range of expected terms was 5.8 to 6.7 years. The volatility used in the calculation
for Awards is based on the historical volatility of Liberty's stocks and the implied volatility of publicly traded Liberty
options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the
subject options.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The following table presents the range of volatilities used by Liberty in the Black-Scholes-Merton Model for the 2016,
2015 and 2014 QVC Group and Liberty Ventures grants.
2016 grants
QVC Group options
Liberty Ventures options
2015 grants
QVC Group options
Liberty Ventures options
2014 grants
QVC Group options
Liberty Ventures options
Liberty - Outstanding Awards
Volatility
27.4 %
30.6 %
27.4 %
30.6 %
33.6 %
41.1 %
-
-
-
-
-
-
27.4 %
30.6 %
39.7 %
42.4 %
39.7 %
43.7 %
The following table presents the number and weighted average exercise price ("WAEP") of the Awards to purchase QVC
Group and Liberty Ventures common stock granted to certain officers, employees and directors of the Company, as well as
the weighted average remaining life and aggregate intrinsic value of the Awards.
QVC Group
Series A
Weighted Aggregate
intrinsic
average
value
remaining
(in
Awards
Awards
Series B
Weighted Aggregate
intrinsic
value
(in
millions)
average
remaining
life
Outstanding at January 1, 2016
Granted
Exercised
Forfeited/Cancelled
Outstanding at December 31, 2016
Exercisable at December 31, 2016
(000's) WAEP
31,482 $19.57
3,714 $26.09
(4,292) $14.14
(1,319) $28.07
29,585 $20.80
18,268 $18.20
life
millions) (000's) WAEP
778 $29.79
730 $ 25.11
— $
—
(19) $29.41
4.4 years $
3.4 years $
65
56
1,489 $27.50 5.6 years
843 $25.68 6.1 years
$
$
—
—
Outstanding at January 1, 2016
CommerceHub Spin-Off
Expedia Holdings Split-Off
Granted
Exercised
Forfeited/Cancelled
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Liberty Ventures
Series A
Weighted Aggregate
Series B
Weighted Aggregate
average
remaining
life
intrinsic
value
Awards
average
remaining
life
intrinsic
value
(in millions)
Awards
(000's) WAEP
3,684 $ 23.29
(16) $ 24.39
(1,483) $ 22.12
114 $ 37.77
(323) $ 19.33
(2) $ 36.39
1,974 $ 22.18
1,540 $ 18.01
(in millions) (000's) WAEP
1,542 $ 38.04
(10) $ 35.86
(734) $ 35.02
209 $ 38.79
— $
—
(20) $ 42.33
987 $ 35.02
184 $ 36.82
30
29
3.3 years $
2.5 years $
5.2 years $
5.9 years $
2
0
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
As of December 31, 2016, the total unrecognized compensation cost related to unvested Liberty Awards was
approximately $118 million. Such amount will be recognized in the Company's consolidated statements of operations over a
weighted average period of approximately 2.1 years.
Liberty - Exercises
The aggregate intrinsic value of all options exercised during the years ended December 31, 2016, 2015 and 2014 was
$44 million, $115 million and $91 million, respectively.
Liberty - Restricted Stock
The Company had approximately 2.8 million and 78 thousand unvested restricted shares of QVC Group and Liberty
Ventures common stock, respectively, held by certain directors, officers and employees of the Company as of December 31,
2016. These Series A and Series B unvested restricted shares of QVC Group and Liberty Ventures had a weighted average
grant-date fair value of $25.19 and $25.77 per share, respectively.
The aggregate fair value of all restricted shares of Liberty common stock that vested during the years ended December
31, 2016, 2015 and 2014 was $26 million, $16 million and $19 million, respectively.
Other
Certain of the Company's other subsidiaries have stock-based compensation plans under which employees and non-
employees are granted options or similar stock-based awards. Awards made under these plans vest and become exercisable
over various terms and are typically cash settled and recorded as liability awards. During the year ended December 31, 2016,
approximately $90 million of cash payments were made to settle CommerceHub stock based awards. The awards and
compensation recorded, if any, under the plans at the other subsidiaries are not significant to Liberty.
(16) Employee Benefit Plans
Subsidiaries of Liberty sponsor 401(k) plans, which provide their employees an opportunity to make contributions to a
trust for investment in Liberty common stock, as well as other mutual funds. The Company's subsidiaries make matching
contributions to their plans based on a percentage of the amount contributed by employees. Employer cash contributions to
all plans aggregated $25 million, $27 million and $27 million, respectively, for the years ended December 31, 2016, 2015 and
2014, respectively.
(17) Other Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in Liberty's consolidated balance sheets and consolidated
statements of equity reflect the aggregate of foreign currency translation adjustments, unrealized holding gains and losses on
AFS securities and Liberty's share of accumulated other comprehensive earnings of affiliates.
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The change in the components of accumulated other comprehensive earnings (loss), net of taxes ("AOCI"), is
summarized as follows:
Foreign Share of
AOCI
AOCI
currency
translation of equity discontinued
of
Balance at January 1, 2014
Other comprehensive earnings (loss) attributable to Liberty Interactive
Corporation stockholders
Distribution to stockholders for TripAdvisor Holdings Spin-Off
Balance at December 31, 2014
Other comprehensive earnings (loss) attributable to Liberty Interactive
Corporation stockholders
Balance at December 31, 2015
Other comprehensive earnings (loss) attributable to Liberty Interactive
Corporation stockholders
Distribution of Liberty Expedia Holdings
Balance at December 31, 2016
adjustments affiliates
operations
AOCI
$
103
(1)
(3)
99
amounts in millions
(178)
—
(75)
(100)
(175)
(85)
—
(260)
(18)
—
(19)
(21)
(40)
(1)
—
(41)
$
$
(3)
6
—
—
—
—
35
35
(199)
6
(94)
(121)
(215)
(86)
35
(266)
The components of other comprehensive earnings (loss) are reflected in Liberty's consolidated statements of
comprehensive earnings (loss) net of taxes. The following table summarizes the tax effects related to each component of
other comprehensive earnings (loss).
Tax
Before-tax (expense) Net-of-tax
benefit
amount
amount
Year ended December 31, 2016:
Foreign currency translation adjustments
Share of other comprehensive earnings (loss) of equity affiliates
Other comprehensive earnings (loss) from discontinued operations
Other
Other comprehensive earnings (loss)
Year ended December 31, 2015:
Foreign currency translation adjustments
Share of other comprehensive earnings (loss) of equity affiliates
Other comprehensive earnings (loss) from discontinued operations
Other comprehensive earnings (loss)
Year ended December 31, 2014:
Foreign currency translation adjustments
Other comprehensive earnings (loss) from discontinued operations
Other comprehensive earnings (loss)
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amounts in millions
$
$
$
$
$
$
(97)
(8)
(3)
10
(98)
(118)
(6)
(27)
(151)
(241)
(31)
(272)
13
3
1
(4)
13
17
2
10
29
49
12
61
(84)
(5)
(2)
6
(85)
(101)
(4)
(17)
(122)
(192)
(19)
(211)
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(18) Commitments and Contingencies
Operating Leases
Liberty leases business offices, has entered into satellite transponder lease agreements and uses certain equipment under
lease arrangements. Rental expense under such arrangements amounted to $46 million, $39 million and $47 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
A summary of future minimum lease payments under noncancelable operating leases and build to suit leases as of
December 31, 2016 follows (amounts in millions):
Years ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
$
$
$
$
$
42
41
36
32
31
169
It is expected that in the normal course of business, leases that expire generally will be renewed or replaced by leases on
other properties; thus, it is anticipated that future lease commitments will not be less than the amount shown for 2016.
Distribution Center Lease
On July 2, 2015, QVC entered into a lease (the “Lease”) for a west coast distribution center. Pursuant to the Lease, the
landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter
leased the Premises to QVC as its new California distribution center for an initial term of 15 years. Under the Lease, QVC is
required to pay an initial base rent of approximately $6 million per year, increasing to approximately $8 million per year by
the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also has an option to
extend the term of the Lease for up to two consecutive terms of 10 years each.
QVC has the right to purchase the Premises and related land from the landlord by entering into an amended and restated
agreement at any time during the twenty-fifth or twenty-sixth months of the Lease's initial term with a $10 million initial
payment and annual payments of $12 million over a term of 13 years.
QVC concluded that it was the deemed owner (for accounting purposes only) of the Premises during the construction
period under build to suit lease accounting. Building construction began in July of 2015. During the construction period,
QVC recorded estimated project construction costs incurred by the landlord as a projects in progress asset and a
corresponding long-term liability in “Property and equipment, net” and “Other long-term liabilities,” respectively. In
addition, QVC paid for normal tenant improvements and certain structural improvements and recorded these amounts as part
of the projects in progress asset. Upon completion of construction, the long-term liability was reclassified to debt. As of
December 31, 2016, the liability related to the California distribution center was approximately $105 million.
On August 29, 2016, QVC’s California distribution center officially opened. QVC concluded that the Lease does not
meet the criteria for “sale-leaseback” treatment under U.S. GAAP. Therefore, QVC treats the Lease as a financing obligation
and lease payments are attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and
(3) land lease expense representing an imputed cost to lease the underlying land of the Premises. In addition,
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
the building asset will be depreciated over its estimated useful life of 20 years. Although QVC did not begin making monthly
lease payments pursuant to the Lease until February 2017, the portion of the lease obligations allocated to the land has been
treated for accounting purposes as an operating lease that commenced in 2015. If QVC does not exercise its right to purchase
the Premises and related land, QVC will derecognize both the net book values of the asset and the financing obligation at the
conclusion of the lease term.
Litigation
Liberty has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible Liberty may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements.
(19) Information About Liberty's Operating Segments
Liberty, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video and on-
line commerce industries. Liberty identifies its reportable segments as (A) those consolidated subsidiaries that represent 10%
or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates
whose share of earnings represent 10% or more of Liberty's annual pre-tax earnings. The segment presentation for prior
periods has been conformed to the current period segment presentation.
Liberty evaluates performance and makes decisions about allocating resources to its operating segments based on
financial measures such as revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped
and revenue or sales per customer equivalent. In addition, Liberty reviews nonfinancial measures such as unique website
visitors, conversion rates and active customers, as appropriate.
Liberty defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and
administrative expenses (excluding stock-based compensation). Liberty believes this measure is an important indicator of the
operational strength and performance of its businesses, including each business's ability to service debt and fund capital
expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and
benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes
depreciation and amortization, stock-based compensation, certain purchase accounting adjustments, separately reported
litigation settlements and restructuring and impairment charges that are included in the measurement of operating income
pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating
income, net income, cash flow provided by operating activities and other measures of financial performance prepared in
accordance with GAAP. Liberty generally accounts for intersegment sales and transfers as if the sales or transfers were to
third parties, that is, at current prices.
For the year ended December 31, 2016, Liberty has identified the following consolidated subsidiaries as its reportable
segments:
· QVC—consolidated subsidiary that markets and sells a wide variety of consumer products in the U.S. and several
foreign countries, primarily by means of its televised shopping programs and via the Internet and mobile transactions
through its domestic and international websites.
· zulily – consolidated subsidiary that markets and sells unique products in the U.S. and several foreign countries through
flash sales events, primarily through its desktop and mobile websites and mobile applications.
Liberty's operating segments are strategic business units that offer different products and services. They are managed
separately because each segment requires different technologies, distribution channels and marketing strategies. The
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
accounting policies of the segments that are also consolidated subsidiaries are the same as those described in the Company's
summary of significant accounting policies.
Performance Measures
QVC Group
QVC
zulily
Corporate and other (1)
Inter-segment eliminations
Total QVC Group
Ventures Group
Corporate and other (1)
Total Ventures Group
Consolidated Liberty
Years ended December 31,
Revenue
2016
2015
Adjusted
Adjusted
OIBDA Revenue OIBDA Revenue
amounts in millions
2014
Adjusted
OIBDA
$ 8,682
1,547
—
(10)
10,219
428
428
$ 10,647
1,840
112
(16)
—
1,936
3
3
1,939
8,743
426
—
—
9,169
820
820
9,989
1,894
21
(28)
—
1,887
8,801
NA
1,227
—
10,028
59
59
1,946
471
471
10,499
1,910
NA
29
—
1,939
26
26
1,965
(1)As discussed in note 2, on October 3, 2014, Liberty completed the reattribution from the QVC Group (formerly
referred to as the Interactive Group, prior to the reattribution), to the Ventures Group its Digital Commerce
businesses. The reattribution of the Digital Commerce businesses is presented on a prospective basis from the date of
the reattribution in Liberty’s consolidated financial statements, with October 1, 2014 used as a proxy for the date of
the reattribution. Accordingly, Revenue and Adjusted OIBDA attributable to the Digital Commerce businesses are
included in the QVC Group for the period through September 30, 2014 and are included in the Ventures Group for the
period beginning October 1, 2014.
Other Information
QVC Group
QVC
zulily
Corporate and other
Total QVC Group
Ventures Group
Corporate and other
Total Ventures Group
Consolidated Liberty
December 31, 2016
Investments Investment
in Liberty
Total
assets
in
affiliates
Capital
Broadband expenditures
amounts in millions
December 31, 2015
Total
assets
Investments
in
affiliates
Capital
expenditures
$ 11,545
2,461
351
14,357
5,998
5,998
$ 20,355
40
—
184
224
357
357
581
—
—
—
—
3,161
3,161
3,161
179
27
—
206
27
27
233
12,058
2,741
342
15,141
6,039
6,039
21,180
43
—
165
208
506
506
714
215
3
—
218
40
40
258
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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
The following table provides a reconciliation of segment Adjusted OIBDA to operating income and earnings (loss) from
continuing operations before income taxes:
Years ended December 31,
2016
2015 2014
Consolidated segment Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Operating income
Interest expense
Share of earnings (loss) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Other, net
Earnings (loss) from continuing operations before income taxes
Revenue by Geographic Area
(97)
(874)
amounts in millions
$ 1,939 1,946 1,965
(108)
(127)
(703)
(669)
968 1,116 1,188
(387)
(360)
(19)
(178)
(57)
114
74
110
(24)
14
775
816
(363)
(68)
1,175
9
131
$ 1,852
Revenue by geographic area based on the location of customers is as follows:
United States
Japan
Germany
Other foreign countries
Long-lived Assets by Geographic Area
United States
Japan
Germany
Other foreign countries
Years ended December 31,
2016
2015
amounts in millions
2014
$
7,979
900
866
902
$ 10,647
7,412
811
850
916
9,989
7,617
912
1,003
967
10,499
December 31,
2016
2015
amounts in millions
$
694
145
154
138
$ 1,131
637
156
173
174
1,140
II-82
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
(20) Quarterly Financial Information (Unaudited)
As discussed in note 3, during the third quarter of 2016, the Company adopted new accounting guidance that
requires the recognition of excess tax benefits and tax deficiencies as income tax benefit or expense rather than as additional
paid-in capital. The Company has applied the new guidance prospectively from January 1, 2016. The unaudited quarterly
information for the first and second quarters of 2016 has been retrospectively adjusted to reflect the impact of the adoption of
this guidance.
In addition, as discussed in note 6, in November 2016, Liberty completed the Expedia Holdings Split-Off. The
unaudited quarterly information below for 2016 and 2015 reflects Liberty’s interest in Expedia as a discontinued operation
for all periods presented.
2016:
Revenue
Operating income
Earnings from continuing operations
Net earnings (loss) attributable to Liberty Interactive Corporation stockholders:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) from continuing operations attributable to Liberty
Interactive Corporation stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) from continuing operations attributable to Liberty
Interactive Corporation stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) attributable to Liberty Interactive Corporation
stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) attributable to Liberty Interactive Corporation
stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
II-83
1st
Quarter
2nd
3rd
4th
Quarter Quarter Quarter
amounts in millions,
except per share amounts
$ 2,510
189
$
92
$
2,563
250
387
2,412
157
451
$
$
94
(26)
130
249
61
408
3,162
372
324
188
131
$ 0.19
$ (0.07)
0.27
1.73
0.13
2.68
0.41
1.15
$ 0.19
$ (0.07)
0.27
1.72
0.13
2.64
0.40
1.15
$ 0.19
$ (0.18)
0.27
1.75
0.13
2.87
0.41
1.21
$ 0.19
$ (0.18)
0.27
1.74
0.13
2.83
0.40
1.21
Table of Contents
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2016, 2015 and 2014
2015:
Revenue
Operating income
Earnings from continuing operations
Net earnings (loss) attributable to Liberty Interactive Corporation stockholders:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) from continuing operations attributable to Liberty
Interactive Corporation stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) from continuing operations attributable to Liberty
Interactive Corporation stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) attributable to Liberty Interactive Corporation
stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) attributable to Liberty Interactive Corporation
stockholders per common share:
Series A and Series B QVC Group common stock
Series A and Series B Liberty Ventures common stock
1st
Quarter
2nd
3rd
4th
Quarter Quarter Quarter
amounts in millions,
except per share amounts
$
$
$
$
$
2,214
236
148
2,252
269
209
2,153
247
166
3,370
364
108
151
(8)
112
130
154
36
223
71
$
$
0.32
(0.09)
0.24
0.57
0.33
0.03
0.45
(0.87)
$
$
0.31
(0.09)
0.24
0.57
0.33
0.03
0.44
(0.87)
$
$
0.32
(0.06)
0.24
0.92
0.33
0.26
0.45
0.50
$
$
0.31
(0.06)
0.24
0.91
0.33
0.25
0.44
0.50
II-84
Table of Contents
PART III
The following required information is incorporated by reference to our definitive proxy statement for our 2017 Annual
Meeting of Stockholders presently scheduled to be held in the second quarter of 2017:
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
We expect to file our definitive proxy statement for our 2017 Annual Meeting of Stockholders with the Securities and
Exchange Commission on or before May 1, 2017.
III-1
Table of Contents
PART IV.
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements
Included in Part II of this report:
Liberty Interactive Corporation:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2016 and 2015
Consolidated Statements of Operations, Years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Earnings (loss), Years ended December 31, 2016, 2015 and
2014
Consolidated Statements of Cash Flows, Years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Equity, Years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements, December 31, 2016, 2015 and 2014
(a)(2) Financial Statement Schedules
Page No.
II-29 & II-30
II-31
II-33
II-34
II-35
II-36
II-37
(i)
All schedules have been omitted because they are not applicable, not material or the required information is set
forth in the financial statements or notes thereto.
(ii)
Separate financial statements for Liberty Broadband Corporation:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2016 and 2015
Consolidated Statements of Operations, Years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss), Years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows, Years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Changes in Shareholders’ Equity, Years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
(a)(3) Exhibits
Page No.
IV-8
IV-9
IV-10
IV-11
IV-12
IV-13
IV-14
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of
Regulation S-K):
2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1
Reorganization Agreement, dated as of August 15, 2014, between Liberty Interactive Corporation and Liberty
TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed on September 3, 2014 (File No. 001-33982)).
IV-1
Table of Contents
2.2
2.3
2.4
Agreement and Plan of Reorganization, dated as of August 16, 2015, by and among Liberty Interactive Corporation,
zulily, inc., Mocha Merger Sub, Inc., and Ziggy Merger Sub, LLC (incorporated by reference to Exhibit 2.1 to zulily,
inc.’s Current Report on Form 8-K filed on August 17, 2015 (File No. 001-36188) (the “Reorganization
Agreement”)).
Reorganization Agreement, dated as of July 15, 2016, between Liberty Interactive Corporation and CommerceHub,
Inc. (incorporated by reference to Exhibit 2.1 to CommerceHub, Inc.’s Current Report on Form 8-K filed on July 26,
2016 (File No. 001-37840) (the “CommerceHub 8-K”)).
Reorganization Agreement, dated as of October 26, 2016, between Liberty Interactive Corporation and Liberty
Expedia Holdings, Inc. (incorporated by reference to Exhibit 2.1 to Post-Effective Amendment No. 1 to Liberty
Expedia Holdings, Inc.’s Registration Statement on Form S-4 filed on November 4, 2016 (File No. 333-210377)).
3 - Articles of Incorporation and Bylaws:
3.1
3.2
3.3
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Amendment No. 4
to the Registrant's Form 8-A filed on June 4, 2015 (File No. 001-33982) (the “Form 8-A”)).
Certificate of Amendment to the Restated Certificate of Incorporation of Liberty Interactive Corporation
(incorporated by reference to Exhibit 3.2 to the Form 8-A).
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K filed on August 6, 2015 (File No. 001-33982)).
4 - Instruments Defining the Rights to Securities Holders, including Indentures:
4.1
4.2
4.3
4.4
4.5
Form of Specimen certificate for shares of the Registrant's Series A QVC Group common stock, par value $.01 per
share (incorporated by reference to Exhibit 4.1 to the Form 8-A).
Form of Specimen certificate for shares of the Registrant's Series B QVC Group common stock, par value $.01 per
share (incorporated by reference to Exhibit 4.2 to the Form 8-A).
Specimen certificate for shares of the Registrant's Series A Liberty Ventures common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-4 filed on April 3,
2012 (File No. 333-180543) (the “Liberty S-4”)).
Specimen certificate for shares of the Registrant's Series B Liberty Ventures common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.4 to the Liberty S-4).
The Registrant undertakes to furnish to the Securities and Exchange Commission, upon request, a copy of all
instruments with respect to long-term debt not filed herewith.
10 - Material Contracts:
10.1
10.2
Liberty Interactive Corporation 2000 Incentive Plan (As Amended and Restated Effective November 7, 2011) (the
"2000 Incentive Plan") (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q
for the quarterly period ending September 30, 2011 filed on November 8, 2011 (File No. 001-33982) (the “Liberty
2011 10-Q”)).
Amendment to the 2000 Incentive Plan (effective as of August 5, 2013) (incorporated by reference to Exhibit 10.3 to
the Liberty Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 filed on November 5,
2013) (File No. 001-33982) (the “Liberty 2013 10-Q”).
IV-2
Table of Contents
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated Effective November 7, 2011) (the
"2007 Incentive Plan") (incorporated by reference to Exhibit 10.6 to the Liberty 2011 10-Q).
Amendment to the 2007 Incentive Plan (effective as of August 5, 2013) (incorporated by reference to Exhibit 10.4 to
the Liberty 2013 10-Q).
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated Effective November 7, 2011) (the
“2010 Incentive Plan”) (incorporated by reference to Exhibit 10.7 to the Liberty 2011 10-Q).
Amendment to the 2010 Incentive Plan (effective August 5, 2013) (incorporated by reference to Exhibit 10.5 to the
Liberty 2013 10-Q).
Liberty Interactive Corporation 2002 Nonemployee Director Incentive Plan (As Amended and Restated Effective
November 7, 2011) (the "2002 Directors Plan") (incorporated by reference to Exhibit 10.8 to the Liberty 2011 10-Q).
Amendment to the 2002 Directors Plan (effective as of August 5, 2013) (incorporated by reference to Exhibit 10.1 to
the Liberty 2013 10-Q).
Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan (amended and restated as of December
17, 2015) (the “2011 Directors Plan”) (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2015 filed on February 26, 2016 (File No. 001-33982) (the “Liberty
2015 10-K”)
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of March 31, 2015) (the “2012
Incentive Plan”) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended on March 31, 2015 filed on May 8, 2015 (File No. 001-33982)).
Liberty Interactive Corporation 2016 Omnibus Incentive Plan (incorporated by reference to Annex A to the
Registrant’s Proxy Statement on Schedule 14A filed on July 8, 2016 (File No. 001-33982)).
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28, 2014 (File No. 001-
33982) (the “Liberty 2013 10-K”)).
10.13
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.14 to the Liberty 2013 10-K).
10.14
10.15
10.16
10.17
10.18
Form of Non-Qualified Stock Option Agreement under the 2000 Incentive Plan, the 2007 Incentive Plan and the
2010 Incentive Plan [for certain designated award recipients] (incorporated by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2011 filed on February 23, 2012 (File
No. 001-33982) (the “Liberty 2011 10-K”)).
Form of Restricted Stock Award Agreement under the 2000 Incentive Plan, the 2007 Incentive Plan and the 2010
Incentive Plan [for certain designated award recipients] (incorporated by reference to Exhibit 10.19 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 25, 2010 (File
No. 001-33982) (the “Liberty 2009 10-K)).
Form of Stock Appreciation Rights Agreement under the 2000 Incentive Plan and the 2007 Incentive Plan
(incorporated by reference to Exhibit 10.20 to the Liberty 2009 10-K).
Form of Non-Qualified Stock Option Agreement under the 2002 Directors Plan and the 2011 Directors Plan
(incorporated by reference to 10.19 to the Liberty 2011 10-K).
Form of Restricted Stock Award Agreement under the 2002 Directors Plan and the 2011 Directors Plan
(incorporated by reference to 10.20 to the Liberty 2011 10-K).
IV-3
Table of Contents
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Form of Stock Appreciation Rights Agreement under the 2002 Directors Plan (incorporated by reference to Exhibit
10.22 to the Liberty 2009 10-K).
Non-Qualified Stock Option Agreement under the 2007 Incentive Plan for Michael George dated March 2, 2011
(incorporated by reference to 10.22 to the Liberty 2011 10-K).
Amended and Restated Non-Qualified Stock Option Agreement under the 2000 Incentive Plan for Gregory B.
Maffei (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 2012 filed on August 8, 2012 (File No. 001-33982) (the “Liberty 2012 10-Q”)).
Amended and Restated Non-Qualified Stock Option Agreement under the 2007 Incentive Plan for Gregory B.
Maffei (incorporated by reference to Exhibit 10.2 to the Liberty 2012 10-Q).
Employment Agreement between Michael George and QVC, effective December 16, 2015 (incorporated by
reference to Exhibit 10.23 to the Liberty 2015 10-K).
Employment Agreement between Gregory B. Maffei and Liberty Interactive Corporation dated December 29, 2014
(incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2014 filed on February 27, 2015 (File No. 001-33982)).
Non-Qualified Stock Option Agreement under the Liberty Interactive Corporation 2010 Incentive Plan for Gregory
B. Maffei, effective December 24, 2014 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2015 filed on August 5, 2015 (File No. 001-33982)).
Letter Agreement regarding personal use of the Liberty aircraft, dated as of February 5, 2013, between Gregory B.
Maffei and Liberty Media Corporation (incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2012 filed on February 28, 2013 (File No. 001-33982)).
Letter Agreement regarding personal use of Liberty Media’s aircraft, dated as of November 11, 2015, between
Gregory B. Maffei and Liberty Media Corporation (incorporated by reference to Exhibit 10.27 to the Liberty 2015
10-K).
Agreement Regarding LINTA Equity Awards dated September 23, 2011, between Liberty Interactive Corporation
and Gregory B. Maffei (incorporated by reference to Exhibit 10.25 to the Liberty 2011 10-K).
Call Agreement, dated as of February 9, 1998 (the "Call Agreement"), between Liberty Interactive Corporation (as
successor of Liberty Interactive LLC (f/k/a Liberty Media LLC, “Old Liberty”), as assignee of Tele-
Communications, Inc.) and the Malone Group (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2008 filed on February 27, 2009 (File No. 001-33982)).
Letter, dated as of March 5, 1999, from Tele-Communications, Inc. and Old Liberty addressed to Mr. Malone and
Leslie Malone relating to the Call Agreement (incorporated by reference to Exhibit 10.27 to the Liberty 2009 10-K).
Form of Indemnification Agreement between the Registrant and its executive officers/directors (incorporated by
reference to Exhibit 10.29 to the Liberty 2011 10-K)
Tax Sharing Agreement, dated September 23, 2011, between Liberty Interactive Corporation, Liberty Interactive
LLC and Liberty Media Corporation (as assignee of Starz (f/k/a Liberty Media Corporation)) (incorporated by
reference to Exhibit 10.4 to Post-Effective Amendment No. 1 to Starz's Registration Statement on Form S-4 filed on
September 23, 2011 (File No. 333-171201) (the “Starz S-4”)).
IV-4
Table of Contents
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
Services Agreement, dated as of September 23, 2011, by and between Liberty Interactive Corporation and Liberty
Media Corporation (as assignee of Starz (f/k/a Liberty Media Corporation)) (incorporated by reference to Exhibit
10.5 to the Starz S-4).
Tax Sharing Agreement, dated as of August 27, 2014, between Liberty Interactive Corporation and Liberty
TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K filed on September 3, 2014 (File No. 001-33982)).
Amendment to Tax Sharing Agreement, dated as of October 3, 2014, between Liberty Interactive Corporation and
Liberty TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q for the quarterly period ended on March 31, 2015 filed on May 8, 2015 (File No. 001-33982)).
Tax Sharing Agreement, dated as of July 22, 2016, between Liberty Interactive Corporation and CommerceHub, Inc.
(incorporated by reference to Exhibit 10.1 to the CommerceHub 8-K).
Tax Sharing Agreement, dated as of November 4, 2016, between Liberty Interactive Corporation and Liberty
Expedia Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on November 7, 2016 (File No. 001-33982)).
Indenture dated as of September 25, 2009 among QVC, the guarantors party thereto and U.S. Bank National
Association, as trustee, as supplemented by that Supplemental Indenture dated as of June 30, 2011 (incorporated by
reference to Exhibit 10.1 to QVC's Registration Statement on Form S-4 filed on October 19, 2012 (File No. 333-
184501) (the “QVC S-4”)).
Indenture dated as of March 23, 2010 among QVC, the guarantors party thereto and U.S. Bank National Association,
as trustee, as supplemented by that Supplemental Indenture dated as of June 30, 2011 (incorporated by reference to
Exhibit 10.2 to the QVC S-4).
Indenture dated as of July 2, 2012 among QVC, the guarantors party thereto and U.S. Bank National Association
(incorporated by reference to Exhibit 4.1 to the QVC S-4).
Indenture dated as of March 18, 2013 among QVC, Inc., the guarantors party thereto and U.S. Bank National
Association (incorporated by reference to Exhibit 10.2 to QVC's Quarterly Report on Form 10-Q filed on May 9,
2013 (File No. 333-184501)).
Form of the Indenture dated as of March 18, 2014 among QVC, Inc., the guarantors party thereto and U.S. Bank
National Association (incorporated by reference to Exhibit 4.1 to QVC’s Registration Statement on Form S-4 filed
on April 30, 2014 (File No. 333-195586)).
Indenture dated as of August 21, 2014 among QVC, Inc., the guarantors party thereto and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to QVC’s Registration Statement on Form S-4 filed on October
10, 2014 (File No. 333-199254)).
Second Amended and Restated Credit Agreement, dated as of March 9, 2015, among QVC, Inc., as Borrower, J.P.
Morgan Securities LLC, as Lead Arranger and Lead Bookrunner, JPMorgan Chase Bank, N.A., as Administrative
Agent, Wells Fargo Bank, N.A., and BNP Paribas, as Syndication Agents, and the parties named therein as Lenders,
Issuing Banks, Documentation Agents and Co-Lead Arrangers and Co-Bookrunners (incorporated by reference to
Exhibit 4.1 to QVC’s Current Report on Form 8-K (File No. 333-184501) as filed on March 13, 2015).
Third Amended and Restated Credit Agreement, dated as of June 23, 2016, among QVC, Inc. and zulily, llc, as
Borrowers, JPMorgan Chase Bank, N.A., as Lead Arranger, Lead Bookrunner and Administrative Agent and the
parties named therein as Lenders, Co-Bookrunners, Co-Syndication Agents and Co-Documentation Agents
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on June 28, 2016
(File No. 001-33982)).
IV-5
Table of Contents
10.46
10.47
10.48
10.49
10.50
10.51
10.52
Tender and Support Agreement, dated as of August 16, 2015, by and among Darrell Cavens, Mark Vadon, Liberty
Interactive Corporation, Mocha Merger Sub, Inc. and zulily, inc. (incorporated by reference to Exhibit 99.1 to zulily,
inc.’s Current Report on Form 8-K filed on August 17, 2015 (File No. 001-36188)).
Amended and Restated Investment Agreement, dated May 28, 2015, by and among Liberty Broadband Corporation,
Liberty Interactive Corporation, JANA Nirvana Master Fund, Ltd., JANA Master Fund, Ltd., and Coatue Offshore
Master Fund, Ltd. (incorporated by reference to Exhibit 10.5 to Liberty Broadband Corporation’s Current Report on
Form 8-K filed on May 29, 2015 (File No. 001-36713) (the “LBC 8-K”).
Amended and Restated Assignment and Assumption Agreement, dated May 29, 2015, by and among Liberty
Broadband Corporation, Liberty Interactive Corporation, Soroban Master Fund LP, and Soroban Opportunities
Master Fund LP (incorporated by reference to Exhibit 10.8 to the LBC 8-K).
Liberty Interactive Corporation Nonemployee Director Deferred Compensation Plan (incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 2015
filed on May 8, 2015 (File No. 001-33982)).
zulily, inc. 2009 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to zulily, inc.’s
Registration Statement on Form S-1 filed on October 8, 2013 (File No. 333-191617)).
zulily, inc. 2013 Equity Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to zulily, inc.’s
Registration Statement on Form S-1 filed on October 17, 2013 (File No. 333-191617)).
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.48 to the Liberty 2015 10-
K).
10.53
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.49 to the Liberty 2015 10-K).
21
Subsidiaries of Liberty Interactive Corporation.*
23.1
Consent of KPMG LLP.*
23.2
Consent of KPMG LLP.*
31.1
Rule 13a-14(a)/15d - 14(a) Certification.*
31.2
Rule 13a-14(a)/15d - 14(a) Certification.*
32
Section 1350 Certification.**
99.1
Unaudited Attributed Financial Information for Tracking Stock Groups.*
99.2
99.3
Reconciliation of Liberty Interactive Corporation Net Assets and Net Earnings to Liberty Interactive LLC Net
Assets and Net Earnings. **
List of Omitted Schedules and Exhibits to the Reorganization Agreement (incorporated by reference to Exhibit 99.1
to Liberty Interactive Corporation’s Current Report on Form 8-K (File No. 001-33982) as filed on August 19, 2015).
101.INS XBRL Instance Document.*
101.SCH XBRL Taxonomy Extension Schema Document.*
101.CAL XBRL Taxonomy Calculation Linkbase Document.*
101.LAB XBRL Taxonomy Label Linkbase Document.*
IV-6
Table of Contents
101.PRE XBRL Taxonomy Presentation Linkbase Document.*
101.DEF XBRL Taxonomy Definition Document.*
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary.
Not applicable.
IV-7
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Liberty Broadband Corporation:
We have audited the accompanying consolidated balance sheets of Liberty Broadband Corporation (the Company) (as defined in
note 1) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive earnings (loss),
cash flows, and equity, for each of the years in the three‑year period ended December 31, 2016. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Liberty Broadband Corporation as of December 31, 2016 and 2015, and the results of their operations and their
cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted
accounting principles.
Denver, Colorado
February 17, 2017
/s/ KPMG LLP
IV-8
Table of Contents
LIBERTY BROADBAND CORPORATION
Consolidated Balance Sheets
December 31, 2016 and 2015
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables, net of allowance for doubtful accounts of $136
thousand and $138 thousand, respectively
Short-term marketable securities
Derivative instruments
Other current assets
Total current assets
Investments in available-for-sale securities (note 5)
Investments in affiliates, accounted for using the equity method (note 6)
Property and equipment, net
Goodwill (note 7)
Intangible assets subject to amortization, net (note 7)
Deferred income tax assets (note 9)
Other assets
Total assets
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Current portion of debt (note 8)
Other current liabilities
Total current liabilities
Debt (note 8)
Deferred income tax liabilities (note 9)
Deferred revenue
Total liabilities
Equity
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and
outstanding 26,251,533 and 26,163,206 at December 31, 2016 and 2015, respectively
Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and
outstanding 2,467,509 and 2,467,547 at December 31, 2016 and 2015, respectively
Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and
outstanding 153,019,547 and 74,643,546 at December 31, 2016 and 2015,
respectively
Additional paid-in capital
Accumulated other comprehensive earnings, net of taxes
Retained earnings (accumulated deficit)
Total equity
Commitments and contingencies (note 14)
Total liabilities and equity
2016
2015
amounts in thousands
$
205,728
655,079
$
$
878
—
49,019
2,794
258,419
—
9,315,253
710
6,497
8,596
—
1,485
9,590,960
7,931
2,171
400,000
2,014
412,116
198,512
504,644
2,596
1,117,868
—
262
25
1,530
7,945,883
7,656
517,736
8,473,092
2,462
9,014
—
11,660
678,215
439,560
2,372,699
1,248
6,497
11,887
55,368
267
3,565,741
10,493
2,629
—
2,254
15,376
399,703
—
2,443
417,522
—
262
25
746
3,537,848
8,905
(399,567)
3,148,219
$
9,590,960
3,565,741
See accompanying notes to consolidated financial statements.
IV-9
Table of Contents
LIBERTY BROADBAND CORPORATION
Consolidated Statements of Operations
Years Ended December 31, 2016, 2015 and 2014
Revenue:
Software sales
Service
Other
Total revenue
Operating costs and expenses
Operating, including stock-based compensation (note 11)
Selling, general and administrative, including stock-based compensation (note 11)
Research and development, including stock-based compensation (note 11)
Gain on legal settlement
Impairment of intangible assets (note 7)
Depreciation and amortization
Operating income (loss)
Other income (expense):
Interest Expense
Dividend and interest income
Share of earnings (losses) of affiliate (note 6)
Gain (loss) on dilution of investment in affiliate (note 6)
Realized and unrealized gains (losses) on financial instruments, net (note 4)
Other, net
Earnings (loss) from continuing operations before income taxes
Income tax benefit (expense)
Net earnings (loss) attributable to Liberty Broadband shareholders
2016
2015
2014
amounts in thousands,
except per share amounts
$
28,597
1,858
131
30,586
2,798
34,703
10,240
—
—
4,005
51,746
(21,160)
(14,956)
5,020
641,544
770,766
94,122
336
1,475,672
(558,369)
917,303
$
10,364
76,139
4,679
91,182
6,096
42,792
17,032
(60,450)
20,669
6,088
32,227
58,955
(7,424)
3,797
(120,962)
(7,198)
2,619
158
(70,055)
19,868
(50,187)
8,428
58,426
2,191
69,045
7,500
47,778
18,477
(6,000)
35,221
9,043
112,019
(42,974)
(1,138)
5,426
(127,573)
(87,158)
51,189
(63)
(202,291)
67,686
(134,605)
Basic earnings (loss) from continuing operations attributable to Series A, Series B and
Series C Liberty Broadband shareholders per common share (note 3)
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty
Broadband shareholders per common share (note 3)
$
$
6.03
(0.49)
(1.52)
6.00
(0.49)
(1.52)
See accompanying notes to consolidated financial statements.
IV-10
Table of Contents
LIBERTY BROADBAND CORPORATION
Consolidated Statements of Comprehensive Earnings (Loss)
Years ended December 31, 2016, 2015 and 2014
Net earnings (loss)
Other comprehensive earnings (loss), net of taxes:
Unrealized holding gains (losses) arising during the period
Share of other comprehensive earnings (loss) of equity affiliate
Other
Other comprehensive earnings (loss), net of taxes
Comprehensive earnings (loss) attributable to Liberty Broadband shareholders
2016
2015
2014
$ 917,303
amounts in thousands
(50,187)
(134,605)
(221)
811
(1,839)
(1,249)
$ 916,054
(287)
1,274
—
987
(49,200)
(3,163)
3,191
—
28
(134,577)
See accompanying notes to consolidated financial statements.
IV-11
Table of Contents
LIBERTY BROADBAND CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2015 and 2014
2016
2015
amounts in thousands
2014
$
917,303
(50,187)
(134,605)
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Impairment of intangible assets
Cash payments for stock-based compensation
Share of (earnings) losses of affiliate, net
(Gain) loss on dilution of investment in affiliate
Realized and unrealized (gains) losses on financial instruments, net
Deferred income tax expense (benefit)
Other, net
Changes in operating assets and liabilities:
Current and other assets
Payables and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expended for property and equipment
Cash paid for acquisitions, net of cash acquired
Investments in equity investees
Amounts loaned to former parent
Repayments by former parent on loan receivable
Purchases of short term investments and other marketable securities
Sales of short term investments and other marketable securities
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Cash received from rights offering
Borrowings of debt
Repayments of debt
Cash received from issuance of Series C Liberty Broadband common stock
Contribution from (distribution to) former parent, net
Proceeds (payments) from issuances of financial instruments
Payments from settlements of financial instruments
Other financing activities, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
4,005
5,713
—
(591)
(641,544)
(770,766)
(94,122)
560,778
1,033
9,161
(2,868)
(11,898)
(267)
—
(5,000,000)
—
—
(155,444)
164,458
453
(4,990,800)
—
200,000
—
4,400,000
—
(47,888)
—
1,235
4,553,347
(449,351)
655,079
205,728
6,088
6,380
20,669
(1,268)
120,962
7,198
(2,619)
(24,964)
(1,440)
(1,238)
(44,292)
35,289
(731)
—
—
—
—
(18,032)
18,019
(1,735)
(2,479)
697,309
67,995
(40,000)
—
—
30,158
(182,192)
4,190
577,460
610,270
44,809
655,079
Supplemental disclosure to the consolidated statements of cash flows:
Cash paid for interest
Cash paid (received) for taxes
$
$
2016
Years ended December 31,
2015
amounts in thousands
7,251
5,485
13,783
(9,410)
See accompanying notes to consolidated financial statements
IV-12
9,043
999
35,221
(732)
127,573
87,158
(51,189)
(66,703)
18
446
(4,501)
2,728
(1,398)
(48,088)
(175,857)
(55,646)
80,012
(9,001)
—
(8)
(209,986)
—
372,000
—
—
(129,184)
130,237
(130,237)
—
242,816
35,558
9,251
44,809
2014
1,078
2,870
Table of Contents
LIBERTY BROADBAND CORPORATION
Consolidated Statement of Equity
Years ended December 31, 2016, 2015 and 2014
Preferred
Common stock
Stock Series A Series B Series C
Additional
paid-in
capital
Accumulated
Retained
other
earnings
Parent’s
comprehensive (accumulated
investment
earnings
deficit)
Total
equity
Balance at January 1, 2014
Net earnings (loss)
Other comprehensive earnings (loss)
Stock-based compensation
Change in capitalization in
connection with Broadband Spin-
Off
Contribution from (distribution
to) former parent
Tax attributes in connection with
Broadband Spin-Off
Balance at December 31, 2014
Net earnings (loss)
Other comprehensive earnings (loss)
Stock-based compensation
Issuance of common stock upon
exercise of stock options
Excess tax benefits from stock-
based compensation
Common stock issued pursuant to
the rights offering
Other
Balance at December 31, 2015
Net earnings (loss)
Other comprehensive earnings (loss)
Stock-based compensation
Issuance of common stock upon
exercise of stock options
Issuance of common stock
Other
Balance at December 31, 2016
$ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
amounts in thousands
—
—
—
422
2,986,079
—
—
—
—
261
25
572 3,155,537
(3,156,395)
—
—
—
—
(299,500)
170,316
—
—
—
—
—
—
—
261
—
—
—
—
25
—
—
—
(21,086)
—
572 2,835,373
—
—
—
—
5,200
—
1
—
1
138
—
—
—
—
1,217
—
—
—
—
—
—
—
—
—
$ —
—
—
262
—
—
—
—
—
—
262
—
—
25
—
—
—
—
—
—
25
697,136
173
—
(1,216)
746 3,537,848
—
—
—
—
5,362
—
1
3,529
783 4,399,217
(73)
—
1,530 7,945,883
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
7,890
—
28
—
—
—
—
7,918
—
987
—
—
—
—
—
8,905
—
(1,249)
—
—
—
—
7,656
IV-13
(214,775) 2,779,194
(134,605)
(134,605)
28
—
422
—
—
—
—
(129,184)
—
(21,086)
(349,380) 2,494,769
(50,187)
987
5,200
(50,187)
—
—
—
—
140
1,217
—
—
697,309
(1,216)
(399,567) 3,148,219
917,303
917,303
(1,249)
—
5,362
—
—
3,530
— 4,400,000
(73)
—
517,736 8,473,092
Table of Contents
(1) Basis of Presentation
During May 2014, the board of directors of Liberty Media Corporation and its subsidiaries (“Liberty”) authorized
management to pursue a plan to spin-off to its stockholders common stock of a wholly-owned subsidiary, Liberty Broadband
Corporation (“Liberty Broadband” or the “Company”), and to distribute subscription rights to acquire shares of Liberty
Broadband’s common stock (the “Broadband Spin-Off”). At the time of the Broadband Spin-off, Liberty Broadband was
comprised of (i) Liberty’s former interest in Charter Communications, Inc. (“Legacy Charter”), (ii) Liberty’s former wholly-
owned subsidiary TruePosition, Inc. (“TruePosition”), (iii) Liberty’s former minority equity investment in Time Warner
Cable, Inc. (“Time Warner Cable”), (iv) certain deferred tax liabilities, as well as liabilities related to the Time Warner Cable
written call options and (v) initial indebtedness, pursuant to margin loans entered into prior to the completion of the
Broadband Spin-Off. These financial statements refer to the combination of the aforementioned subsidiary, investments, and
financial instruments, as “Liberty Broadband,” “the Company,” “us,” “we” and “our” in the notes to the consolidated
financial statements. The Broadband Spin-Off was accounted for at historical cost due to the pro rata nature of the
distribution to holders of Liberty common stock.
In the Broadband Spin-Off, record holders of Liberty Series A, Series B and Series C common stock received one-
fourth of a share of the corresponding series of Liberty Broadband common stock for each share of Liberty common stock
held by them, with cash paid in lieu of fractional shares. In addition, following the completion of the Broadband Spin-Off, on
December 10, 2014, stockholders received a subscription right to acquire one share of Series C Liberty Broadband common
stock for every five shares of Liberty Broadband common stock. See note 10 for additional information related to the rights
offering.
Following the Broadband Spin-Off, Liberty and Liberty Broadband operate as separate, publicly traded companies,
and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the Broadband Spin-Off,
Liberty (for accounting purposes a related party of the Company) and Liberty Broadband entered into certain agreements in
order to govern certain of the ongoing relationships between the two companies after the Broadband Spin-Off and to provide
for an orderly transition. These agreements include a reorganization agreement, a services agreement, a facilities sharing
agreement and a tax sharing agreement.
The reorganization agreement provides for, among other things, the principal corporate transactions (including the
internal restructuring) required to effect the Broadband Spin-Off, certain conditions to the Broadband Spin-Off and
provisions governing the relationship between Liberty Broadband and Liberty with respect to and resulting from the
Broadband Spin-Off. The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits
between Liberty and Liberty Broadband and other agreements related to tax matters. Pursuant to the tax sharing agreement,
Liberty Broadband has agreed to indemnify Liberty, subject to certain limited exceptions, for losses and taxes resulting from
the Broadband Spin-Off to the extent such losses or taxes result primarily from, individually or in the aggregate, the breach
of certain restrictive covenants made by Liberty Broadband (applicable to actions or failures to act by Liberty Broadband and
its subsidiaries following the completion of the Broadband Spin-Off). Pursuant to the services agreement, Liberty provides
Liberty Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations
support. Under the facilities sharing agreement, Liberty Broadband shares office space with Liberty and related amenities at
Liberty’s corporate headquarters. Liberty Broadband will reimburse Liberty for direct, out-of-pocket expenses incurred by
Liberty in providing these services which will be negotiated semi-annually. Under these various agreements, approximately
$3.4 million and $3.3 million were reimbursed to Liberty for the years ended December 31, 2016 and 2015, respectively.
On May 18, 2016, Time Warner Cable merged with Charter (the “Time Warner Cable Merger”). In connection with
the Time Warner Cable Merger, Legacy Charter underwent a corporate reorganization, resulting in CCH I, LLC
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Table of Contents
(“Charter”), a former subsidiary of Charter, becoming the new publicly traded parent company. Also on May 18, 2016, the
previously announced acquisition of Bright House Networks, LLC (“Bright House”) from Advance/Newhouse Partnership
(“A/N”) by Charter (the “Bright House Transaction”) was completed. In connection with the Time Warner Cable Merger and
Bright House Transaction, Liberty Broadband entered into certain agreements with Legacy Charter, Charter (for accounting
purposes a related party of the Company), Liberty Interactive Corporation (“Liberty Interactive,” for accounting purposes a
related party of the Company) and Time Warner Cable. As a result of the Time Warner Cable Merger and Bright House
Transaction (collectively, the “Transactions”), Liberty Broadband exchanged its shares of Time Warner Cable for shares of
Charter and purchased additional shares of Charter. As a result, and pursuant to proxy agreements entered into with Liberty
Interactive and A/N, Liberty Broadband controls 25.01% of the aggregate voting power of Charter. See note 6 for additional
detail regarding these transactions and corresponding agreements.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”) and represent a combination of the historical financial information of
Skyhook, the Company’s interest in Charter, the Company’s former minority equity investment in Time Warner Cable and
certain deferred tax liabilities. All significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
(2) Description of Business
Skyhook Holding, Inc. (formerly known as TruePosition, Inc.) was originally incorporated on November 24, 1992 to
provide technology for locating wireless phones and other mobile devices. Skyhook Holding, Inc.’s location offering was a
passive network overlay system using its patented U-TDOA technology (“U-TDOA service”) and was used primarily to
provide E-9-1-1 services domestically and to enhance services in support of commercial applications, national security and
law enforcement worldwide. In February 2014, Skyhook Holding, Inc. acquired 100% of the outstanding common shares of
Skyhook Wireless, Inc., for approximately $57.5 million in cash. Skyhook Wireless, Inc. operates a global location network
containing billions of geolocated Wi-Fi access points (“Wi-Fi location software solution”) and cell towers that serve as the
reference infrastructure for providing location services. These Wi-Fi location software solutions are used primarily by mobile
device makers, wireless carriers, and asset tracking platforms to understand the precise geographic location and movement of
a mobile device. In addition to Wi-Fi location software solutions, Skyhook also provides location-based context services that
provide not just the precise latitude and longitude of a given mobile device, but also the real world context of that location.
For example, Skyhook can provide customers with an understanding of the type of location (e.g., a fast-food restaurant or an
airport), the ability to provide notifications and triggers upon the entry or exit of a device from a pre-defined location, and
insights based on historical device locations. These location-based context solutions provide a way for application
developers, enterprises, and advertisers to understand consumers’ mobile behavior and to improve their user experience,
while also providing companies with the ability to reach and measure their audiences in new and relevant ways. Acquisition
related costs of $958 thousand are included in selling, general and administrative expenses for the year ending December 31,
2014.
In 2015, one of Skyhook Holding, Inc.’s customers, a wireless carrier utilizing the legacy U-TDOA service which
accounted for approximately 80% - 90% of consolidated revenue at the time, gave notice that it planned to discontinue use of
the U-TDOA service and did not intend to renew its contract, which expired on December 31, 2015. The loss of this
customer had a material adverse effect on Skyhook Holding, Inc.’s business. As a result of the loss of this wireless carrier
customer, further changes in the regulatory environment and a shift in the overall market for the legacy U-TDOA service,
Skyhook Holding, Inc. ceased making further investment in its U-TDOA products. In 2016, Skyhook Holding, Inc. and
Skyhook Wireless, Inc. combined operations in order to focus on the development and sale of the suite of location and
context products, and are referred to collectively herein as “Skyhook.”
For both its location and context solutions, Skyhook earns revenue from device makers, application providers,
enterprises and advertising companies through the integration of Skyhook’s technology, the provision of location services and
via the sale of data. Skyhook also earns revenue through entering into licensing agreements with companies to utilize
IV-15
Table of Contents
its intellectual property. Although the revenue generated from license agreements has thus far been one-time in nature,
Skyhook anticipates a recurring revenue stream from its licensing activities in future periods.
Charter is the second largest cable operator in the United States and a leading broadband communications services
company providing video, Internet and voice services to approximately 26.2 million residential and business customers at
December 31, 2016. In addition, Charter sells video and online advertising inventory to local, regional and national
advertising customers; and fiber-delivered communications and managed information technology (“IT”) solutions to business
customers. Charter also owns and operates regional sports networks and local sports, news and lifestyle channels and its
residential services include security and home management services. Charter’s core strategy is to deliver high quality
products at highly competitive prices, combined with outstanding service.
Also included in Liberty Broadband is a former investment in outstanding shares of Time Warner Cable, which was
classified as available-for-sale and carried at fair value based on quoted market prices until the second quarter of 2016 when
Time Warner Cable merged with Charter. See note 5 for information regarding the Company’s former investment in Time
Warner Cable. Additionally, the Company historically had written call options and a cashless collar agreement on Time
Warner Cable shares. See note 4 for information regarding the Time Warner Cable written call options and cashless collar
agreement.
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash consists of cash deposits held in global financial institutions. Cash equivalents consist of highly liquid
investments with original maturities of three months or less at the time of acquisition. Cash that has restrictions upon its
usage has been excluded from cash and cash equivalents. Restricted cash is comprised of a certificate of deposit being held as
collateral against Skyhook’s office lease in Boston. Restricted cash was $32 thousand and included in Other assets in the
consolidated balance sheets at both December 31, 2016 and 2015.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and reduced by an allowance for doubtful accounts. For
accounts outstanding longer than the contractual payment terms, the Company determines an allowance by considering a
number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific
customer’s ability to pay its obligations to us, and current economic conditions.
Derivative Instruments and Hedging Activities
All of the Company’s derivatives, whether designated in hedging relationships or not, are recorded on the balance
sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and
are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the
fair value of cash flow hedges are recognized in earnings. If the derivative is not designated as a hedge, changes in the fair
value of the derivative are recognized in earnings. None of the Company’s derivatives are currently designated as hedges.
The fair value of certain of the Company’s derivative instruments are estimated using the Black Scholes Merton
option-pricing model (“Black-Scholes model”). The Black-Scholes model incorporates a number of variables in determining
such fair values, including expected volatility of the underlying security and an appropriate discount rate. The
IV-16
Table of Contents
Company obtained volatility rates from pricing services based on the expected volatility of the underlying security over the
remaining term of the derivative instrument. A discount rate was obtained at the inception of the derivative instrument and
updated each reporting period, based on the Company’s estimate of the discount rate at which it could currently settle the
derivative instrument. The Company considered its own credit risk as well as the credit risk of its counterparties in estimating
the discount rate. Management judgment was required in estimating the Black-Scholes variables. See note 4 for further
discussion of fair value of the Company’s derivative instruments. The Company had an outstanding derivative instrument
classified as an asset at December 31, 2016. See note 4 for further information.
Property and Equipment
Property and equipment consists of the following (amounts in thousands):
Support equipment
Computer equipment
Furniture & fixtures
Accumulated depreciation
December 31,
2015
2016
5,177 21,769
2,257
2,040
2,025
1,813
26,051
9,030
(24,803)
(8,320)
1,248
710
$
$
Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which is three years for computer equipment and five years
for support equipment and furniture and fixtures. In 2015, Skyhook wrote-off the majority of its assets related to its legacy U-
TDOA service.
Investments
All marketable debt and equity securities held by the Company are classified as available-for-sale (“AFS”) and are
carried at fair value generally based on quoted market prices. Fair values are determined for each individual security in the
investment portfolio. Unrealized gains and losses, net of taxes, arising from changes in fair value are reported in accumulated
other comprehensive income (loss) as a component of shareholders’ equity.
GAAP permits entities to choose to measure many financial instruments, such as AFS securities, and certain other
items at fair value and to recognize the changes in fair value of such instruments in the entity’s statements of operations (the
“Fair Value Option”). Liberty Broadband has elected the Fair Value Option for those of its AFS securities which it considers
to be non-strategic (“Fair Value Option Securities”). Accordingly, changes in the fair value of Fair Value Option Securities, as
determined by quoted market prices, are reported in realized and unrealized gain (losses) on financial instruments in the
accompanying consolidated statements of operations. The total value of AFS securities for which the Company has elected
the Fair Value Option aggregated $438.9 million as of December 31, 2015. There were no AFS securities outstanding at
December 31, 2016.
The Company continually reviews its AFS securities not designated as Fair Value Option Securities to determine
whether a decline in fair value below the carrying value is other than temporary. The primary factors considered in this
determination are the length of time that the fair value of the investment is below the carrying value, the severity of the
decline, and the financial condition, operating performance and near term prospects of the investee. In addition, the Company
considers the reason for the decline in fair value, be it general market conditions, industry specific or investee specific;
analysts’ ratings and estimates of 12 month share price targets for the investee; changes in stock price or valuation
IV-17
Table of Contents
subsequent to the balance sheet date; and the Company’s intent and ability to hold the investment for a period of time
sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the carrying
value of the security is written down to fair value. In situations where the fair value of an investment is not evident due to a
lack of public market price or other factors, the Company uses its best estimates and assumptions to arrive at the estimated
fair value of such investments. The Company’s assessment of the foregoing factors involves considerable management
judgment and accordingly, actual results may differ materially from the Company’s estimates and judgments. Writedowns of
AFS securities would be included in the consolidated statements of operations as other than temporary declines in fair values
of investments. There were no impairment charges recorded during 2016, 2015 or 2014.
For those investments in affiliates in which the Company has the ability to exercise significant influence, the equity
method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize the
Company’s share of net earnings or losses of the affiliate as they occur rather than as dividends or other distributions are
received. Losses are limited to the extent of the Company’s investment in, advances to and commitments for the investee.
The Company determines the difference between the purchase price of the investee and the underlying equity which results
in an excess basis in the investment. This excess basis is allocated to the underlying assets and liabilities of the Company’s
investee through a purchase accounting exercise and is allocated within memo accounts used for equity accounting
purposes. Depending on the applicable underlying assets, these amounts are either amortized over the applicable useful lives
or determined to be indefinite lived. We periodically evaluate our equity method investment to determine if decreases in fair
value below our cost basis are other than temporary. If a decline in fair value is determined to be other than temporary, we are
required to reflect such decline in our consolidated statement of operations. Other than temporary declines in fair value of our
equity method investment would be included in share of earnings (losses) of affiliate in our consolidated statement of
operations. Changes in the Company’s proportionate share of the underlying equity of an equity method investee, which
result from the issuance of additional equity securities by such equity investee, are recognized in the statement of operations
through the gain (loss) on dilution of investment in affiliate line item.
As Liberty Broadband does not control the decision making process or business management practices of our
affiliate accounted for using the equity method, Liberty Broadband relies on management of its affiliate to provide it with
accurate financial information prepared in accordance with GAAP that the Company uses in the application of the equity
method. In addition, Liberty Broadband relies on the audit reports that are provided by the affiliate’s independent auditors on
the financial statements of such affiliate. The Company is not aware, however, of any errors in or possible misstatements of
the financial information provided by its equity affiliate that would have a material effect on Liberty Broadband’s
consolidated financial statements. See note 6 for additional discussion regarding our investment in Charter and the
Transactions that occurred during the second quarter of 2016.
Leases
The Company, through its consolidated entities, leases facilities and certain equipment under cancelable and non-
cancelable lease agreements. The terms of some of the lease agreements provide for rental payments on a graduated basis.
Rent expense is recognized on a straight-line basis over the lease period and accrued as rent expense incurred but not paid.
The lease term begins on the date we become legally obligated for the rent payments or when we take possession of the
office space, whichever is earlier.
In February 2016, the FASB issued new accounting guidance on lease accounting. This guidance requires a
company to recognize lease assets and lease liabilities arising from operating leases in the statement of financial position. The
new guidance also simplifies the accounting for sale and leaseback transactions. The amendments in this update are effective
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is
permitted. Companies are required to use a modified retrospective approach to adopt this guidance. The Company has not
yet determined the effect of the standard on its ongoing financial reporting, and has not yet determined an adoption date. The
Company is currently working with its consolidated subsidiary to evaluate the impact
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of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases,
evaluating technology solutions and collecting lease data.
Goodwill and Other Indefinite Lived Intangible Assets
The Company performs at least annually an assessment of the recoverability of goodwill and other indefinite-lived
intangible assets during the fourth quarter of each year. The Company utilizes a qualitative assessment for determining
whether the quantitative impairment analysis is necessary. The accounting guidance permits entities to first assess qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform the two-step impairment test. In evaluating goodwill on a
qualitative basis, the Company reviews the business performance of each reporting unit and evaluates other relevant factors
as identified in the relevant accounting guidance to determine whether it was more likely than not that an indicated
impairment exists for any of our reporting units. The Company considers whether there are any negative macroeconomic
conditions, industry specific conditions, market changes, increased competition, increased costs in doing business,
management challenges, the legal environments and how these factors might impact company-specific performance in future
periods.
If based on the qualitative analysis it is more likely than not that an impairment exists, the Company performs the
two-step impairment test. In the Step 1 Test, the Company compares the estimated fair value of a reporting unit to its carrying
value. Developing estimates of fair value requires significant judgments, including making assumptions about appropriate
discount rates, perpetual growth rates, relevant comparable market multiples, public trading prices and the amount and timing
of expected future cash flows. The cash flows employed in the Company’s valuation analysis are based on management’s
best estimates considering current marketplace factors and risks as well as assumptions of growth rates in future years. There
is no assurance that actual results in the future will approximate these forecasts. For those reporting units whose carrying
value exceeds the fair value, a second test is required to measure the impairment loss (the “Step 2 Test”). In the Step 2 Test,
the fair value (Level 3) of the reporting unit is allocated to all of the identifiable assets and liabilities of the reporting unit,
including identifiable assets that may not currently be recognized, with any residual value being allocated to goodwill. Any
excess of the carrying value of the goodwill over this allocated amount is recorded as an impairment charge.
The accounting guidance also permits entities to first perform a qualitative assessment to determine whether it is
more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more
likely than not that the carrying value of the Company’s indefinite-lived intangible assets, other than goodwill, exceeds its
fair value, then a quantitative assessment is performed. If the carrying value of an indefinite-lived intangible asset exceeds its
fair value, an impairment loss is recognized in an amount equal to that excess.
See note 7 for additional discussion regarding goodwill impairment losses recorded during the years ended
December 31, 2015 and 2014. There was no goodwill impairment loss recorded during the year ended December 31, 2016.
Internal Use Software Development Costs
Certain costs incurred during the application development stage related to the development of internal use software
are capitalized and included in other intangible assets. Capitalized costs include internal and external costs, if direct and
incremental, and deemed by management to be significant. Costs related to the planning and post implementation phases of
software development are expensed as these costs are incurred. Maintenance and enhancement costs (including those costs in
the post-implementation stages) are typically expensed as incurred, unless such costs relate to substantial upgrades and
enhancements to the website or software resulting in added functionality, in which case the costs are capitalized.
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Impairment of Long-Lived Assets
Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-
line basis over their estimated useful lives of three to five and a half years. The Company periodically reviews the carrying
value of long-lived assets or asset groups, including property and equipment, to be used in operations whenever events or
changes in circumstances indicate that the carrying amount of the assets or asset groups might not be recoverable.
Factors that would necessitate an impairment assessment include a significant adverse change in the extent or
manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the
value of the asset group, or a significant decline in the observable market value of an asset group, among others. If such facts
indicate a potential impairment, the recoverability of the asset group is assessed by determining whether the carrying value of
the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual
disposition of the asset group over the remaining economic life of the asset group. If the carrying amount of the asset group is
greater than the expected undiscounted cash flows to be generated by such asset group, including its ultimate disposition, an
impairment adjustment is to be recognized. Such adjustment is measured by the amount that the carrying value of such asset
groups exceeds their fair value. The Company generally measures fair value by considering sale prices for similar assets or
by discounting estimated future cash flows using an appropriate discount rate. Considerable management judgment is
necessary to estimate the fair value of asset groups. Accordingly, actual results could vary significantly from such estimates.
Asset groups to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to
sell. The Company recorded a $16.8 million impairment loss to its intangible assets with definite lives during the year ended
December 31, 2014 due to an anticipated decline in Skyhook’s operations as a result of the loss of one of its significant Wi-Fi
location software solution customers, as discussed in note 7. There was no indication of impairment of long-lived assets
during the years ended December 31, 2016 or 2015.
Foreign Currency Translation and Transaction Gains and Losses
The functional currency of the Company is the United States (“U.S.”) dollar. Transactions denominated in
currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses which are reflected in the accompanying
consolidated statements of operations and comprehensive earnings (loss) as unrealized (based on the applicable period end
exchange rate) or realized upon settlement of the transactions.
Revenue Recognition
Skyhook earns revenue from device makers, application providers, enterprises and advertising companies through
the integration of Skyhook’s software and technology, the provision of location services and through the sale of data. In
addition, Skyhook earns revenue from licensing its intellectual property to other enterprises. Prior to 2016, Skyhook also
earned significant revenue from the sale of hardware and the licensing of associated software required to operate a passive
network overlay system for generating location records for wireless devices using U-TDOA technology, and from
professional and support services related thereto. These services were primarily sold to wireless carriers to provide E-9-1-1
services domestically and to enhance services in support of commercial applications, national security and law enforcement
worldwide.
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Skyhook recognizes fees received from intellectual property licensing at the inception of a license term for perpetual
licenses (or licenses with terms comprising substantially all of the remaining life of the intellectual property) when
collectability of the license fee is probable and there are no ongoing performance obligations. Revenue recognition is
deferred when collectability of the license fee is not considered probable, when the license term is less than substantially all
of the remaining life of the intellectual property, or when there are ongoing performance obligations which are not separate
elements from the license. In such circumstances, revenue may be recognized as the license fees are collected or over the
license term or performance period as appropriate.
Fees from the integration of Skyhook technology are accounted for consistent with the outstanding guidance for
software revenue recognition. Under those policies, for revenue derived from multiple-element arrangements, if vendor
specific objective evidence (“VSOE”) exists for each of the elements of the arrangement at the outset, the Company allocates
the revenue to the various elements for recognition upon delivery of each element. If VSOE is not present, the revenue is
deferred until the earlier of establishing sufficient VSOE for allocating revenue for recognition or delivery of all of the
elements. If a multiple-element arrangement includes post-contract customer support (commonly referred to as maintenance),
VSOE must exist for the maintenance in order to allocate revenue to all of the elements of the arrangement. If VSOE does
not exist for the maintenance, revenue for the entire arrangement is recognized ratably over the contractual or expected term
of the maintenance arrangement.
Revenue from the provision of location services and through the sale of data and revenue from tangible products
that contain software components and non-software components that function together to deliver the tangible products
essential functionality are not under the scope of software revenue recognition guidance and are instead subject to the
guidance for multiple-element arrangements. Accordingly, for multiple-element arrangements entered into or materially
modified on or after January 1, 2011, the overall arrangement fee is allocated to each element (both delivered and
undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or
third-party evidence of selling price or are based on the entity’s estimated selling price. The associated revenue for each
element is recognized upon delivery assuming all other criteria for revenue recognition are met.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue
from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to
be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In
March 2016, the FASB issued additional guidance which clarifies principal versus agent considerations, and in April 2016,
the FASB issued further guidance which clarifies the identification of performance obligations and the implementation
guidance for licensing. The updated guidance will replace most existing revenue recognition guidance in GAAP when it
becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early
adoption is permitted only for fiscal years beginning after December 15, 2016. We have identified the Company’s various
revenue streams and are working with our subsidiary to evaluate the quantitative effects of the new guidance. The Company
has not yet selected a transition method. We will continue to provide updates as to the progress of our evaluation in our
quarterly reports during 2017.
Research and Development Costs
Research and development costs are expensed as incurred.
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Deferred Revenue and Deferred Costs
Deferred revenue represents billings in excess of revenue previously recognized. Deferred costs represent direct
costs related to installation services, hardware, and software, which, to the extent not previously recognized, are recognized
as the related revenue is recognized. As discussed in note 7, Skyhook recognized $35.5 million of deferred revenue during
December 2015, which was attributable to prepaid transaction fees, in connection with the expiration of its largest legacy U-
TDOA service customer’s contract.
Stock-Based Compensation
As more fully described in note 11, Liberty Broadband has granted to its directors, employees and employees of
certain of its subsidiaries options, restricted stock and stock appreciation rights (“SARs”) to purchase shares of Liberty
Broadband common stock (collectively, “Awards”). Liberty Broadband measures the cost of employee services received in
exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of
the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the
vesting period of the Award). Liberty Broadband measures the cost of employee services received in exchange for an Award
of liability instruments (such as stock appreciation rights that will be settled in cash) based on the current fair value of the
Award, and remeasures the fair value of the Award at each reporting date. Certain outstanding awards of Liberty were
assumed by Liberty Broadband at the time of the Broadband Spin-Off.
Additionally, Skyhook sponsors long-term incentive plans (“LTIPs”) which provide for the granting of phantom
stock units (“PSUs”), and phantom stock appreciation rights (“PARs”) to employees, directors, and consultants of Skyhook.
Skyhook measures the cost of employee services received in exchange for awards of equity instruments based on the grant-
date fair value of the award and recognizes that cost ratably over the period during which the employee is required to provide
service (usually the vesting period of the award). Skyhook measures the cost of employee services received in exchange for
awards of liability instruments (such as PSUs and PARs that will be settled in cash) based on the current fair value of the
award, and remeasures the fair value of the award at each reporting date. The consolidated statements of operations includes
stock-based compensation related to Skyhook awards.
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based
payment award transactions, including the income tax consequences, forfeitures, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. The new standard is effective for the Company for fiscal years
and interim periods beginning after December 15, 2016, with early application permitted. The Company adopted this
guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are
recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize
forfeitures as they occur rather than continue to estimate expected forfeitures. In addition, pursuant to the new guidance,
excess tax benefits are classified as an operating activity on the consolidated statements of cash flows. The recognition of
excess tax benefits and deficiencies are applied prospectively from January 1, 2016. Based on the Company’s analysis, no
cumulative effect adjustment to retained earnings was necessary for tax benefits that were not previously recognized and for
adjustments to compensation cost based on actual forfeitures. The presentation changes for excess tax benefits have been
applied retrospectively in the consolidated statements of cash flows, resulting in the reclassification of $1.2 million of excess
tax benefits for the year ended December 31, 2015, from cash flows from financing activities to cash flows from operating
activities. There were no excess tax benefits reclassified for the years ended December 31, 2016 and December 31, 2014.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying value
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amounts and income tax bases of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit
carryforwards. The deferred tax assets and liabilities are calculated using enacted tax rates in effect for each taxing
jurisdiction in which the Company operates for the year in which those temporary differences are expected to be recovered or
settled. Net deferred tax assets are then reduced by a valuation allowance if the Company believes it more likely than not that
such net deferred tax assets will not be realized. We consider all relevant factors when assessing the likelihood of future
realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable
income, and the carryforward periods available to us for tax reporting purposes, as well as assessing available tax planning
strategies. The effect on deferred tax assets and liabilities of an enacted change in tax rates is recognized in income in the
period that includes the enactment date. Due to inherent complexities arising from the nature of our businesses, future
changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we
make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest
expense from the first period the interest would begin accruing according to the relevant tax law. Such interest expense is
included in interest expense in the accompanying consolidated statements of operations. Any accrual of penalties related to
underpayment of income taxes on uncertain tax positions is included in other income (expense) in the accompanying
consolidated statements of operations.
We recognize in our consolidated financial statements the impact of a tax position, if that position is more likely
than not to be sustained upon an examination, based on the technical merits of the position.
Certain Risks and Concentrations
The Skyhook business was subject to certain risks and concentrations including dependence on relationships with its
customers. Skyhook had one significant legacy U-TDOA service customer whose contract expired on December 31, 2015.
The loss of this customer had a material adverse effect on Skyhook’s business which is expected to continue unless Skyhook
is able to generate significant new business to replace the financial impact of this customer. For the years ended
December 31, 2015 and 2014, this customer accounted for 85% and 83%, respectively, of Skyhook’s total revenue.
Contingent Liabilities
Periodically, we review the status of all significant outstanding matters to assess any potential financial exposure.
When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be
reasonably estimated, we record the estimated loss in our consolidated statements of operations. We provide disclosure in the
notes to the consolidated financial statements for loss contingencies that do not meet both these conditions if there is a
reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant
judgment is required to determine the probability that a liability has been incurred and whether such liability is
reasonably estimable. We base accruals made on the best information available at the time which can be highly subjective.
The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated
financial statements.
Comprehensive Earnings (Loss)
Comprehensive earnings (loss) consists of net income (loss), cumulative foreign currency translation adjustments,
unrealized gains and losses on available-for-sale securities, net of tax and the Company’s share of the comprehensive
earnings (loss) of our equity method affiliate.
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Earnings per Share (EPS)
Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) by the weighted
average number of common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of
potential common shares as if they had been converted at the beginning of the periods presented.
The Company issued 85,761,332 common shares, which is the aggregate number of shares of Series A, Series B and
Series C common stock outstanding upon the completion of the Broadband Spin-Off on November 4, 2014. Additionally,
following the completion of the Broadband Spin-Off, Liberty Broadband distributed subscription rights, which were priced at
a discount to the market value, to all holders of Liberty Broadband common stock (see further discussion in note 10). The
rights offering, because of the discount, is considered a stock dividend which requires retroactive treatment for prior periods
for the weighted average shares outstanding based on a factor applied determined by the fair value per share immediately
prior to the rights exercise and the theoretical fair value after the rights exercise. The number of shares issued upon
completion of the Broadband Spin-Off, adjusted for the rights factor, was used to determine both basic and diluted EPS for
the period from January 1, 2014 through the date of the Broadband Spin-Off, as no Company equity awards were outstanding
prior to the Broadband Spin-Off. In addition, the Company issued 78,250,042 shares of Series C common stock in connection
with the Time Warner Cable Merger on May 18, 2016 (see further discussion in note 10). Basic EPS subsequent to the
Broadband Spin-Off was computed using the weighted average number of shares outstanding (“WASO”), adjusted for the
rights factor, from the date of the completion of the Broadband Spin-Off through January 9, 2015, the date on which the
rights offering was fully subscribed. Basic EPS subsequent to January 9, 2015 was computed using WASO. Diluted EPS
subsequent to the Broadband Spin-Off was computed using the WASO from the date of the completion of the Broadband
Spin-Off through January 9, 2015, adjusted for the rights factor and potentially dilutive equity awards outstanding during the
same period. Subsequent to January 9, 2015, basic EPS was computed using the WASO during the period, and diluted EPS
was computed using the WASO adjusted for potentially dilutive equity awards outstanding during the period.
Basic WASO
Potentially dilutive shares
Diluted WASO
Years ended December 31,
2016
2015
2014
number of shares in thousands
152,103
749
152,852
102,504
494
102,998
88,143
630
88,773
Potential common shares excluded from diluted EPS because their inclusion would be antidilutive for the years
ended December 31, 2016, 2015 and 2014 are approximately 17 thousand, 3 thousand, and 17 thousand, respectively.
Reclasses and adjustments
Certain prior period amounts have been reclassified for comparability with the current year presentation.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company
considers (i) application of the equity method of accounting for its affiliates, (ii) fair value of non-financial
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instruments, (iii) fair value of financial instruments, (iv) revenue recognition, and (v) accounting for income taxes to be its
most significant estimates.
Recent Accounting Pronouncements
In August 2014, the FASB issued new accounting guidance which requires management to assess whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the financial statements are issued. If substantial doubt exists, additional disclosures are
required. The amendments in this update are effective for the annual period ending after December 15, 2016, and the
Company adopted this standard during the year ended December 31, 2016. The Company’s management completed the
required analysis as of December 31, 2016, noting no conditions or events, considered in the aggregate, that raised substantial
doubt about the Company’s ability to continue as a going concern.
(4) Assets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to
valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active
markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2
inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either
directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any
recurring assets or liabilities measured at fair value that would be considered Level 3.
The Company’s assets and liabilities measured at fair value are as follows:
December 31, 2016
Quoted prices
Significant
in active
other
markets for
observable
Description
Total
(Level 1)
identical assets
inputs
(Level 2)
December 31, 2015
Quoted prices
in active
markets for
identical assets
Significant
other
observable
inputs
Total
(Level 1)
(Level 2)
$
Cash equivalents
Short-term marketable
securities
$
Available-for-sale securities $
$
Derivative instruments (1)
198,011
198,011
—
639,956
639,956
amounts in thousands
—
—
49,019
—
—
—
—
—
9,014
439,560
49,019
—
9,014
439,560
—
—
—
—
—
(1)As of December 31, 2016, the Company has an outstanding zero-strike call option on 704,908 shares of Liberty
Broadband Series C common stock which expires in March 2017. The Company prepaid a premium of $47.9 million
in December 2016. Liberty Broadband has the option to settle in cash or shares of Liberty Broadband Series C
common stock upon expiration of the contract.
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The fair value of Level 2 derivative instruments were derived from a Black-Scholes model using observable market
data as the significant inputs. The inputs used in the model during the period outstanding (exclusive of the applicable trading
price of Series C Liberty Broadband common stock and the strike prices associated with the call options) were as follows:
Volatility
Interest rate
Dividend yield
Range
21.1 % —
1.0 % —
0 % —
21.5 %
1.0 %
0 %
Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables,
accrued and other current liabilities, current portion of debt and long-term debt. With the exception of long-term debt, the
carrying amount approximates fair value due to the short maturity of these instruments as reported on our consolidated
balance sheets. The carrying value of our long-term debt bears interest at a variable rate and therefore is also considered to
approximate fair value.
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the
following:
Legacy Charter warrants (1)
Time Warner Cable investment and financial instruments
(2)(3)(4)
Derivative instruments (5)
Years ended December 31,
2016
2015
2014
(amounts in thousands)
NA
NA
92,990
1,132
94,122
2,619
—
2,619
32,782
18,407
—
51,189
$
$
(1)As discussed in note 6, Liberty Broadband exercised all of the Company’s outstanding warrants to purchase
shares of Legacy Charter common stock during November 2014, subsequent to the completion of the Broadband
Spin-Off.
(2)As of December 31, 2014, the Company had an outstanding written call option on 625,000 Time Warner Cable
shares with a strike price of $92.02 per share which expired in February 2015. Upon expiration, this written call
option was rolled into a new written call option on 625,000 Time Warner Cable shares with a strike price of
$100.39 per share which the Company cash settled during June 2015 for $48.3 million. Additionally, as of
December 31, 2014, the Company had another outstanding written call option on 625,000 Time Warner Cable
shares with a strike price of $90.84 per share which the Company cash settled during April 2015 for $36.7
million. No written call options on Time Warner Cable shares were outstanding as of or during the year ended
December 31, 2016.
(3)On March 27, 2015, Liberty Broadband entered into a cashless collar agreement with a financial institution on
1.7 million Time Warner Cable shares held by the Company with a put option strike price of $136.80 per share
and a call option strike price of $161.62 per share. The collar was originally scheduled to expire
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during March 2017. The Company unwound the agreement during July 2015 for $67.1 million cash paid to the
counterparty. In connection with this collar agreement, the Company also entered into a revolving loan
agreement with an availability of $234 million, which was terminated upon unwinding of the collar agreement
during July 2015 (note 8).
(4)As discussed in note 6, Time Warner Cable merged with Charter on May 18, 2016. Therefore the Company no
longer has an investment in Time Warner Cable as of May 18, 2016, and the unrealized gain (loss) related to our
investment in Time Warner Cable is recorded through this date. In connection with the merger, the Company
exchanged, in a tax-free transaction, its shares of Time Warner Cable for shares of Charter Class A common
stock.
(5)As of December 31, 2016, the Company had an outstanding zero-strike call option on 704,908 shares of Liberty
Broadband Series C common stock which expires in March 2017. The Company had an unrealized gain on the
option during the current year primarily due to an increase in the market price of Liberty Broadband Series C
common stock during that period.
(5) Investments in Available-for-Sale Securities
All marketable equity and debt securities held by the Company are classified AFS and are carried at fair value
generally based on quoted market prices. GAAP permits entities to choose to measure many financial instruments, such as
AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the
entity’s statements of operations. The Company has elected to account for those of its AFS securities which it considers to be
nonstrategic (“Fair Value Option Securities”) at fair value. Accordingly, changes in the fair value of Fair Value Option
Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial
instruments in the accompanying consolidated statements of operations.
Investments in AFS securities, including our interest in Time Warner Cable which was our only Fair Value Option
Security, are summarized as follows:
Time Warner Cable (1)
Other equity securities
Total Investments in available-for-sale securities
December 31,
December 31,
2016
2015
amounts in thousands
$
$
—
—
—
438,912
648
439,560
(1)As discussed in note 6, Time Warner Cable merged with Charter on May 18, 2016. Therefore the Company no
longer has an investment in Time Warner Cable as of this date.
Unrealized Holding Gains and Losses
There were no unrealized holding gains in Accumulated other comprehensive earnings (loss) related to investment
in AFS securities for the year ended December 31, 2016. For the year ended December 31, 2015, the gross unrealized
holding gain related to investment in AFS securities was $357 thousand. There were no gross unrealized holding losses
related to investment in AFS securities for the periods presented.
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(6) Investments in Affiliates Accounted for Using the Equity Method
In May 2013, Liberty completed a transaction with investment funds managed by, or affiliated with, Apollo
Management, Oaktree Capital Management and Crestview Partners to acquire approximately 26.9 million shares of common
stock and approximately 1.1 million warrants in Legacy Charter for approximately $2.6 billion, which represented an
approximate 27% beneficial ownership (including the warrants on an as if converted basis) in Legacy Charter at the time of
purchase and a price per share of $95.50. Liberty funded the purchase with a combination of cash of approximately
$1.2 billion on hand and new margin loan arrangements on approximately 20.3 million Legacy Charter common shares,
approximately 720 million SIRIUS XM common shares, approximately 8.1 million Live Nation common shares and a
portion of Liberty’s available for sale securities, including shares of Time Warner Cable. The margin loan secured by the
Charter and Time Warner Cable shares was repaid and the collateral was released prior to completion of the Broadband Spin-
Off. Under Liberty’s stockholders agreement with Charter, Liberty had the right to nominate four directors to the Charter
board of directors, subject to certain exclusions and requirements. Liberty also had the right to cause one of its nominees to
serve on the nominating and corporate governance, audit and compensation and benefits committees of the board, provided
they meet the independence and other qualifications for membership on those committees. These rights were transferred to
Liberty Broadband in connection with the Broadband Spin-Off and, in connection with the Bright House Transaction, on
May 23, 2015, Liberty Broadband entered into the Second Amended and Restated Stockholders Agreement with Legacy
Charter, Charter and A/N, as amended (the “Stockholders Agreement”). The Stockholders Agreement became fully effective
upon the closing of the Time Warner Cable Merger and continues to provide Liberty Broadband with board nomination
rights. Liberty allocated the purchase price between the shares of common stock and the warrants acquired in the transaction
by determining the fair value of the publicly traded warrants and allocating the remaining balance to the shares acquired,
which resulted in an excess basis in the investment of $2,532.3 million. The investment in Charter is accounted for as an
equity method affiliate based on our ownership interest and the board seats held by individuals appointed by Liberty
Broadband.
During May 2014, Liberty purchased 897 thousand Legacy Charter shares for approximately $124.5 million. During
November 2014, subsequent to the completion of the Broadband Spin-Off, Liberty Broadband borrowed $52 million to fund
the exercise of all of the Company’s outstanding Legacy Charter warrants (see note 8). The exercise of the Legacy Charter
warrants resulted in a non-cash investing addition of $130.6 million to the equity method investments line item and a $130.6
million non-cash investing reduction to the derivative instruments line item within the consolidated balance sheets.
On May 18, 2016, the Time Warner Cable Merger was completed, which resulted in Legacy Charter and Time
Warner Cable becoming wholly owned subsidiaries of Charter. Also on May 18, 2016, the previously announced Bright
House Transaction was completed. In connection with these transactions, Legacy Charter underwent a corporate
reorganization, resulting in Charter, a former subsidiary of Legacy Charter, becoming the new publicly traded parent
company. In connection with the Time Warner Cable Merger and the Bright House Transaction, Liberty Broadband
completed the previously announced transactions described below:
Transactions completed in connection with the Time Warner Cable Merger
Charter Investment Agreement
On May 18, 2016, Liberty Broadband completed its previously announced investment in Charter in accordance with
the investment agreement dated May 23, 2015 by and among Liberty Broadband, Legacy Charter and Charter (the “Charter
Investment Agreement”). Pursuant to the Charter Investment Agreement, immediately following the consummation of the
Time Warner Cable Merger, Liberty Broadband purchased from Charter $4.3 billion of shares of Charter Class A common
stock, par value $0.001 per share, at a price per share of $195.70 following adjustment by the applicable exchange ratio. As a
result, Liberty Broadband received approximately 22.0 million shares of Charter Class A
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common stock. Liberty Broadband funded its purchase of these shares of New Charter Class A common stock with proceeds
from the issuance of Liberty Broadband Series C common stock (note 10).
Charter Contribution Agreement
Also on May 18, 2016, shares of Time Warner Cable common stock held by Liberty Broadband and Liberty
Interactive were exchanged, in a tax-free transaction, for shares of Charter Class A common stock which resulted in each of
Liberty Broadband and Liberty Interactive receiving one share of Charter Class A common stock for each share of Time
Warner Cable common stock so exchanged. In the exchange, Liberty Broadband received approximately 2.4 million shares of
Charter Class A common stock, with a fair value of $531.9 million.
Liberty Interactive Proxy Agreement
Pursuant to the Proxy and Right of First Refusal Agreement, dated May 23, 2015, as amended (the “Liberty
Interactive Proxy Agreement”), by and between Liberty Broadband and Liberty Interactive, Liberty Interactive granted
Liberty Broadband an irrevocable proxy to vote all shares of Charter common stock owned beneficially or of record by
Liberty Interactive following the closing of the Time Warner Cable Merger, for a five year term subject to extension upon the
mutual agreement of both parties, subject to certain limitations. So long as the Liberty Interactive Proxy Agreement is in
effect, Liberty Broadband also has a right of first refusal to purchase all or a portion of any shares of Charter common stock
which Liberty Interactive proposes to transfer, subject to certain limitations.
Transactions Completed in connection with the Bright House Transaction
Second Amended and Restated Stockholders Agreement
On May 18, 2016, pursuant to the Stockholders Agreement, upon the closing of the Bright House Transaction,
Liberty Broadband purchased from Charter approximately 3.7 million additional shares of Charter Class A common stock at
a price per share of $191.33 following adjustment by the applicable exchange ratios, for an aggregate purchase price of $700
million. Liberty Broadband funded its $700 million purchase in shares of Charter through cash on hand and margin loan
draws (note 8).
Proxy and Right of First Refusal Agreement
In connection with the Bright House Transaction, on May 18, 2016, A/N and Liberty Broadband entered into a
proxy and right of first refusal agreement, as amended (the “A/N Proxy”), pursuant to which A/N granted Liberty Broadband
a five-year proxy to vote shares of Charter held by A/N, capped at a number of shares representing 7% of the voting power of
Charter’s outstanding shares. As a result of the A/N Proxy and the Liberty Interactive Proxy Agreement, Liberty Broadband
controls 25.01% of the aggregate voting power of Charter following the completion of the Time Warner Cable Merger and
the Bright House Transaction and is Charter’s largest stockholder.
So long as the A/N Proxy is in effect, if A/N proposes to transfer common units of Charter Communications
Holdings, LLC (which units are exchangeable into Charter shares and which will, under certain circumstances, result in the
conversion of certain shares of Class B Common Stock into Charter shares) or Charter shares, in each case, constituting
either (i) shares representing the first 7.0% of the outstanding voting power of Charter held by A/N or (ii) shares representing
the last 7.0% of the outstanding voting power of New Charter held by A/N, Liberty Broadband will have a right of first
refusal (“ROFR”) to purchase all or a portion of any such securities A/N proposes to transfer. The purchase price per share
for any securities sold to Liberty Broadband pursuant to the ROFR will be the volume-weighted average price of Charter
shares for the two trading day period before the notice of a proposed sale by A/N, payable in cash. Certain transfers are
permitted to affiliates of A/N, subject to the transferee entity entering into an agreement assuming the transferor’s obligations
under the A/N Proxy.
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Investment in Charter
For discussion purposes the term “Charter” will be used to discuss both our previous and current holdings in Legacy
Charter and Charter. It is noted that the ticker symbol for Legacy Charter and Charter are the same, and that in connection
with the Time Warner Cable Merger, Legacy Charter underwent a corporate reorganization, resulting in Charter, a former
subsidiary of Legacy Charter, becoming the new publicly traded parent company.
As of December 31, 2016, the carrying value of Liberty Broadband’s ownership in Charter was approximately
$9,315 million. The market value of Liberty Broadband’s ownership in Charter as of December 31, 2016 was approximately
$15,568 million, which represented an approximate ownership of 20% of the outstanding equity of Charter as of that date.
During the years ended December 31, 2016, 2015 and 2014, there was a dilution gain of $770.8 million, and dilution
losses of $7.2 million and $87.2 million, respectively, in the Company’s investment in Charter. The gain during 2016 is
primarily due to the Time Warner Cable Merger. Even after considering the exchange of Time Warner Cable shares held by
Liberty Broadband to shares of Charter, Liberty Broadband’s interest in Charter was diluted as a result of the conversion of
outstanding Time Warner Cable shares held by third parties into shares of Charter. However, Liberty Broadband recognized a
gain during the period as Liberty Broadband’s investment basis in Charter was at a price per share below the new equity
issued in the Time Warner Cable Merger. This gain was partially offset by losses due to the issuance of Charter common
stock from the exercise of warrants and stock options, held by outside investors (employees and other third parties), at prices
below Liberty Broadband’s investment basis per share during the year. The loss during 2015 is the result of the issuance of
Charter common stock from the exercise of warrants and stock options, held by outside investors (employees and other third
parties), at prices below Liberty Broadband’s investment basis per share during the year.
During the years ended December 31, 2016, 2015 and 2014, the Company recorded $811 thousand, $1.3 million and
$3.2 million, respectively, of its share of Charter’s other comprehensive earnings, net of income taxes. Charter records gains
and losses related to the fair value of its interest rate swap agreements which qualify as hedging activities in other
comprehensive income. The pre-tax portion of Liberty Broadband’s share of Charter’s other comprehensive earnings was
$1.3 million, $2.1 million and $5.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Due to the amortization of amortizable assets acquired and losses due to warrant and stock option exercises at
Charter (as previously discussed), the excess basis has decreased to $1,243.7 million as of December 31, 2016. Such amount
has been allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):
Property and equipment
Customer relationships
Franchise fees
Trademarks
Goodwill
Debt
Deferred income tax liability
$
$
222.2
386.1
1,170.2
29.2
145.6
(37.5)
(672.1)
1,243.7
Upon acquisition, the Company ascribed remaining useful lives of 7 years and 13 years to property and equipment
and customer relationships, respectively, and indefinite lives to franchise fees, trademarks and goodwill. Outstanding debt is
amortized over the contractual period using the effective interest rate method. Included in our share of earnings from Charter
of $641.5 million, and losses of Charter of $121.0 million and $127.6 million for the years ended December 31, 2016, 2015
and 2014, respectively, are $41.8 million, $51.6 million and $81.2 million, respectively, of losses, net of taxes,
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due to the amortization of the excess basis of our investment in Charter related to debt and intangible assets with identifiable
useful lives. The excess basis amortization during the year ended December 31, 2015 was offset by the write-off of the excess
basis related to debt instruments which Charter repaid during the second quarter of 2015 prior to their contractual maturity.
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Charter Communications, Inc.
Summarized financial information for Charter is as follows:
Consolidated Balance Sheets
December 31,
2016
December 31,
2015
$
$
$
$
amounts in millions
3,300
32,963
29,509
81,924
1,371
149,067
9,572
26,665
59,719
2,745
50,366
149,067
345
8,345
1,168
6,862
22,596
39,316
1,972
1,590
35,723
77
(46)
39,316
Years ended December 31,
2016
2015
2014
amounts in millions
$
29,003
9,754
9,108
18,655
6,907
86
25,648
3,355
(2,499)
(111)
75
2,925
3,745
(223)
3,522
6,426
2,125
89
8,640
1,114
(1,306)
(128)
(11)
60
(271)
—
(271)
5,973
2,102
62
8,137
971
(911)
—
(7)
(236)
(183)
—
(183)
Current assets
Property and equipment, net
Goodwill
Intangible assets
Other assets
Total assets
Current liabilities
Deferred income taxes
Long-term debt
Other liabilities
Equity
Total liabilities and equity
Consolidated Statements of Operations
Revenue
Cost and expenses:
Operating costs and expenses (excluding
depreciation and amortization)
Depreciation and amortization
Other operating expenses, net
Operating income
Interest expense
Loss on extinguishment of debt
Other income (expense), net
Income tax (expense) benefit
Net earnings (loss)
Less: Net income attributable to noncontrolling
interests
Net Income (loss) attributable to Charter shareholders
$
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(7) Goodwill and Other Intangible Assets
Changes in the carrying amount of Skyhook goodwill is as follows (amounts in thousands):
Balance at January 1, 2014
Acquisitions (1)
Impairments (2)
Balance at December 31, 2014
Impairments (3)
Balance at December 31, 2015
Other
Balance at December 31, 2016
$
$
20,669
24,931
(18,434)
27,166
(20,669)
6,497
—
6,497
(1) As discussed in note 2, Skyhook Holding, Inc. acquired Skyhook Wireless, Inc. on February 14, 2014.
(2)In mid-November 2014, Skyhook was notified that one of its significant customers was not expected to renew its
contract related to Wi-Fi location software solution for 2015. As a result, approximately 30-40% of Skyhook’s
Wi-Fi location software solution revenue was not expected to recur during 2015. Due to this anticipated decline
in Skyhook’s operations, the Company determined the fair value of Skyhook and performed a Step 2 impairment
test. The fair value of Skyhook, including the related intangibles and goodwill, was determined using Skyhook’s
projections of future operating performance and applying a combination of market multiples (market approach)
and discounted cash flow (income approach) calculations (Level 3). The impairment test resulted in a $35.2
million impairment loss recorded to Skyhook’s goodwill and intangible assets related to Skyhook’s Wi-Fi
location software solution during December 2014.
(3)Skyhook’s legacy U-TDOA service was historically largely dependent on one wireless carrier (AT&T), which
accounted for approximately 80% - 90% of Skyhook’s overall revenue related to its U-TDOA service. During
September 2015, AT&T gave notice that it did not intend to renew its contract, which expired on December 31,
2015. The Company believed that the receipt of the notification represented a significant change in circumstances
since we last performed our annual goodwill impairment test. Accordingly, we performed a goodwill impairment
test upon receipt of the notification. At that time, the estimated fair value of the reporting unit was primarily
determined based on the cash and cash equivalents held by the reporting unit, and when compared to its carrying
value, it was concluded that a goodwill impairment did not exist. The carrying value of Skyhook included a $35.5
million deferred revenue liability related to the contract with AT&T. Upon expiration of the contract on
December 31, 2015, the deferred revenue was recognized, as all contractual obligations were satisfied at that
time. The recognition of this deferred revenue liability increased the reporting unit carrying value. As a result, the
Company determined the fair value of Skyhook. As the reporting unit’s carrying value exceeded the fair value,
we performed a Step 2 impairment test. The fair value of Skyhook, including the related intangibles and
goodwill, was determined using Skyhook’s projections of future operating performance and applying a
combination of market multiples (market approach) and discounted cash flow (income approach) calculations
(Level 3). The impairment test resulted in a $20.7 million impairment loss related to Skyhook’s goodwill related
to Skyhook’s legacy U-TDOA service during December 2015.
As of December 31, 2016, the Company’s accumulated goodwill impairment loss was $39.1 million. The Company
does not have any significant indefinite lived intangible assets other than goodwill.
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Intangible assets subject to amortization are comprised of the following (amounts in thousands):
December 31, 2016
December 31, 2015
Gross Carrying Accumulated Net Carrying Gross Carrying Accumulated Net Carrying
Acquired patents
Tradename
Capitalized software
Customer relationships
$
$
Amount
Amortization
(8,450)
(1,528)
(710)
(5,440)
(16,128)
10,823
2,838
850
10,213
24,724
Amount
Amount
2,373
1,310
140
4,773
8,596
10,823
2,838
10,973
10,212
34,846
Amortization
(6,872)
(1,154)
(10,857)
(4,076)
(22,959)
Amount
3,951
1,684
116
6,136
11,887
Effective January 1, 2015, Skyhook’s patents are amortized straight-line over three to three and a half years.
Skyhook's capitalized software intangible assets are amortized straight-line over three to five years. Skyhook's customer
relationships and tradename are amortized straight-line over five and a half years. Amortization expense was $3.4 million,
$3.1 million and $6.5 million for each of the years ended December 31, 2016, 2015 and 2014, respectively.
The estimated future amortization expense for the next five years related to intangible assets with definite lives as of
December 31, 2016 is as follows (amounts in thousands):
2017
2018
2019
2020
2021
Total
(8) Debt
$ 3,368
2,573
1,786
869
—
$ 8,596
Outstanding debt at December 31, 2016 and December 31, 2015 is summarized as follows:
December 31, 2016 December 31, 2015
amounts in thousands
400,000
200,000
600,000
400,000
—
400,000
$
2014 Margin Loans
2016 Margin Loans
Total
2014 Margin Loans
On October 30, 2014, in connection with and prior to the effectiveness of the Broadband Spin-Off, a wholly-owned
special purpose subsidiary of the Company ("BroadbandSPV") entered into two margin loan agreements (the "2014 Margin
Loan Agreements") with each of the lenders party thereto. The 2014 Margin Loan Agreements permit
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BroadbandSPV, subject to certain funding conditions, to borrow term loans up to an aggregate principal amount equal to
$400 million (the " 2014 Margin Loans"), of which BroadbandSPV borrowed $320 million on October 31, 2014 and had $80
million available to be drawn immediately following the Broadband Spin-Off. During November 2014, subsequent to the
Broadband Spin-Off, Liberty Broadband borrowed an additional $52 million to fund the exercise of the Legacy Charter
warrants. As of December 31, 2014, Liberty Broadband had $372 million outstanding under the 2014 Margin Loan
Agreements, with an additional $28 million available to be drawn. $300 million of the amount borrowed pursuant to the 2014
Margin Loan Agreements (less certain expenses incurred in connection with the 2014 Margin Loans) was distributed to
Liberty prior to the Broadband Spin-Off. During October 2015, Liberty Broadband borrowed an additional $28 million
pursuant to the 2014 Margin Loan Agreements. The maximum borrowing capacity of $400 million under the 2014 Margin
Loan Agreements was outstanding at December 31, 2016. The maturity date of the 2014 Margin Loans is October 30, 2017.
Borrowings under the 2014 Margin Loan Agreements bear interest at the three-month LIBOR rate plus 1.55% and have an
unused commitment fee of 0.25% per annum based on the average daily unused portion of the 2014 Margin Loans.
Borrowings outstanding under these margin loans bore interest at a rate of 2.39% per annum at December 31, 2016. Interest
is payable quarterly in arrears beginning on December 31, 2014. The 2014 Margin Loan Agreements contain various
affirmative and negative covenants that restrict the activities of BroadbandSPV. The 2014 Margin Loan Agreements do not
include any financial covenants. The 2014 Margin Loan Agreements also contain certain restrictions related to additional
indebtedness. In connection with Cheetah 5’s (as defined below) execution of the 2016 Margin Loan Agreements (as defined
below), the 2014 Margin Loan Agreements were amended to, among other things, permit the transactions under the 2016
Margin Loan Agreements and conform certain of the terms in the 2014 Margin Loan Agreements to the 2016 Margin Loan
Agreements.
2016 Margin Loans
On March 21, 2016, a wholly-owned special purpose subsidiary of the Company (“Cheetah 5”), entered into two
margin loan agreements (the “2016 Margin Loan Agreements” and together with the 2014 Margin Loan Agreements, the
“Margin Loan Agreements”) with each of the lenders thereto. The 2016 Margin Loan Agreements permit Cheetah 5, subject
to certain funding conditions, to borrow initial term loans up to an aggregate principal amount equal to $200 million and
delayed draw loans (the “Draw Loans”) up to an aggregate principal amount equal to $100 million, for an aggregate total of
$300 million (collectively the “2016 Margin Loans”). At December 31, 2016, Cheetah 5 had borrowed $200 million as of
December 31, 2016 and had $100 million available to be drawn until March 21, 2017. The maturity date of the 2016 Margin
Loans is March 21, 2018. Borrowings under the 2016 Margin Loans bear interest at the applicable LIBOR rate plus 2.10%
per annum and have an unused commitment fee of 0.5% per annum based on the average daily unused portion of the Draw
Loans. Borrowings outstanding under the 2016 Margin Loan Agreements bore interest at a rate of 2.94% per annum at
December 31, 2016. Interest is payable quarterly in arrears beginning on March 31, 2016. The proceeds of the 2016 Margin
Loans were used for the Company’s additional investment in Charter during May 2016 (note 6). Borrowings may also be
used for distribution as a dividend or a return of capital, for the purchase of margin stock and for general corporate purposes.
The 2016 Margin Loan Agreements contain various affirmative and negative covenants that restrict the activities of Cheetah
5. The 2016 Margin Loan Agreements do not include any financial covenants. The 2016 Margin Loan Agreements also
contain restrictions related to additional indebtedness.
BroadbandSPV and Cheetah 5’s respective obligations under the Margin Loan Agreements, are guaranteed by the
Company. In addition, BroadbandSPV and Cheetah 5’s obligations are secured by first priority liens on a portion of the
Company’s ownership interest in Charter, sufficient for BroadbandSPV and Cheetah 5 to meet the loan to value requirements
under the Margin Loan Agreements. The Margin Loan Agreements each contain language that indicates that Liberty
Broadband, transferor of underlying shares as collateral, has the right to exercise all voting, consensual and other powers of
ownership pertaining to the transferred shares for all purposes, provided that Liberty Broadband agrees that it will not vote
the shares in any manner that would reasonably be expected to give rise to transfer or other certain restrictions. Similarly, the
Margin Loan Agreements indicate that no lender party shall have any voting rights with respect to the shares transferred,
except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms
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of the Margin Loan Agreements. As of December 31, 2016, 9.5 million shares of Charter with a value of $2.7 billion were
pledged as collateral pursuant to the Margin Loan Agreements.
As mentioned, the 2014 Margin Loans have a maturity date of October 2017, which is within one year of the
balance sheet date. As such, the 2014 Margin Loans have been classified as a current liability in the consolidated balance
sheet as of December 31, 2016. Management intends to refinance the loan on a long-term basis. In addition, the 2014 Margin
Loans are adequately collateralized, as discussed above.
In connection with the collar agreement on shares of Time Warner Cable entered into on March 27, 2015, as
discussed in note 4, the Company also entered into a $234 million revolving loan agreement. On April 7, 2015, Liberty
Broadband drew $40 million on this loan, which was the amount used to match the outstanding call liability due in April
2015. The shares of Time Warner Cable underlying the collar served as collateral for borrowings under the revolving loan
agreement. Borrowings outstanding under the revolving loan agreement bore interest at the three-month LIBOR rate plus
0.64%, payable quarterly in arrears beginning on March 31, 2015. The interest rate on the unused portion of the revolving
loan agreement was 0.12% per annum. The Company repaid the $40 million drawn on the loan during July 2015 and the
agreement was terminated upon unwinding of the Time Warner Cable collar agreement.
(9) Income Taxes
Liberty Broadband, as consolidated, was included in the federal consolidated income tax return of Liberty through
November 4, 2014. Subsequent to the Broadband Spin-Off, Liberty Broadband files separate federal consolidated income tax
returns. The tax provision included in these financial statements has been prepared on a stand-alone basis, as if Liberty
Broadband was not part of the consolidated Liberty group for the periods prior to the Broadband Spin-Off. Charter is not
included in the Liberty Broadband consolidated group tax return as Liberty Broadband owns less than 80% of the company.
A portion of the income taxes allocated to Liberty Broadband by Liberty were treated as an equity contribution by Liberty
upon completion of the Broadband Spin-Off.
Income tax benefit (expense) consists of:
Current:
Federal
State and local
Deferred:
Federal
State and local
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in thousands
$
1,556
853
2,409
(4,234)
(862)
(5,096)
510
473
983
(493,890)
(66,888)
(560,778)
$ (558,369)
23,512
1,452
24,964
19,868
62,014
4,689
66,703
67,686
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Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of
35% as a result of the following:
Years ended December 31,
2016
2015
2014
amounts in thousands
Computed expected tax benefit (expense)
State and local taxes, net of federal income taxes
Foreign taxes, net of foreign tax credit
Change in valuation allowance
Dividends received deduction
Change in tax rate
Impairment of intangible assets not deductible for tax purposes
Loss on liquidation of subsidiary
Derivative instrument
Other
Income tax (expense) benefit
$ (516,485) 24,519 70,802
2,657
—
(2,154)
819
(998)
(6,452)
3,082
—
(70)
67,686
(42,995)
(1,180)
683
931
45
—
—
396
236
$ (558,369)
1,786
(59)
612
752
(179)
(7,234)
—
—
(329)
19,868
For the year ended December 31, 2016 the significant reconciling items, as noted in the table above, are the result of
the effect of state income taxes.
For the year ended December 31, 2015 the significant reconciling items, as noted in the table above, are the result of
the impairment to non-deductible goodwill related to Skyhook’s legacy U-TDOA service.
For the year ended December 31, 2014 the significant reconciling items, as noted in the table above, are the result of
the impairment to non-deductible goodwill at Skyhook related to its Wi-Fi location software solution and a tax loss from the
liquidation of a consolidated subsidiary at Skyhook.
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The tax effects of temporary differences and tax attributes that give rise to significant portions of the deferred
income tax assets and deferred income tax liabilities are presented below:
December 31,
2016
2015
amounts in thousands
Deferred tax assets:
Net operating loss and tax credit carryforwards
Investments
Accrued stock-based compensation
Deferred revenue
Other
$
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Investments
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
23,017
—
4,812
1,721
2,073
31,623
(6,945)
24,678
(527,151)
(2,170)
(1)
(529,322)
$ (504,644)
12,585
45,195
2,896
1,880
2,254
64,810
(7,628)
57,182
—
(1,795)
(19)
(1,814)
55,368
The Company’s valuation allowance decreased $683 thousand in 2016, which affected tax expense during the year
ended December 31, 2016.
At December 31, 2016, the Company has a deferred tax liability on investments of $527.2 million primarily as a
result of the merger between Time Warner Cable and Charter, as discussed in note 6.
At December 31, 2016, Liberty Broadband had federal and state net operating losses (on a tax effected basis) and
tax credit carryforwards for income tax purposes aggregating approximately $23.0 million. These net operating losses and
credit carryforwards are expected to be utilized prior to expiration, except for $6.9 million which based on current
projections, may expire unused and accordingly are subject to a valuation allowance. The carryforwards that are expected to
be utilized will begin to expire in 2022.
As of December 31, 2016, the Company had not recorded tax reserves related to unrecognized tax benefits for
uncertain tax positions.
As of December 31, 2016, Liberty’s tax years prior to 2013 are closed for federal income tax purposes, and the IRS
has completed its examination of Liberty’s 2013 through 2014 tax years. The tax loss carryforwards from the 2011 through
2014 tax years are still subject to adjustment. The IRS has completed its examination of Liberty Broadband’s 2015 tax year.
Liberty Broadband’s 2016 tax year is being examined as part of the IRS’s Compliance Assurance Process “CAP” program.
As discussed earlier, because Liberty Broadband’s ownership of Charter is less than the required 80%, Charter is not
consolidated with Liberty Broadband for federal income tax purposes.
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(10) Stockholders' Equity
In the Broadband Spin-Off, record holders of Liberty Series A, Series B and Series C common stock received one-
fourth of a share of the corresponding series of Liberty Broadband common stock for each share of Liberty common stock
held by them, with cash paid in lieu of fractional shares. This resulted in the issuance of an aggregate 85,761,332 shares of
Series A, Series B and Series C common stock.
In addition, following the completion of the Broadband Spin-Off, on December 10, 2014, stockholders received a
subscription right to acquire one share of Liberty Broadband Series C common stock for every five shares of Liberty
Broadband common stock they held as of the rights record date at a per share subscription price of $40.36, which was a 20%
discount to the 20-trading day volume weighted average trading price of the Series C Liberty Broadband common stock
following the completion of the Broadband Spin-Off. The rights offering was fully subscribed on January 9, 2015, with
17,277,224 shares of Series C common stock issued to those rightsholders exercising basic and, as applicable,
oversubscription privileges. The subscription rights were issued to raise capital for general corporate purposes of Liberty
Broadband.
In connection with the Time Warner Cable Merger in May 2016, Liberty Broadband funded its purchase of shares of
Charter Class A common stock using proceeds of $4.4 billion related to subscriptions for approximately 78.3 million newly
issued shares of Liberty Broadband Series C common stock, par value $0.01 per share (the “Series C Shares”), at a price per
share of $56.23, which was determined based upon the fair value of Liberty Broadband’s net assets on a sum-of-the parts
basis at the time certain Amended and Restated Investment Agreements were executed. The purchasers of the Series C
Shares were Liberty Interactive through its Liberty Ventures Group (approximately 42.7 million shares) and certain other
third party investors, which all invested on substantially similar terms. One of the third party investors also held a position in
Time Warner Cable and agreed to vote its Time Warner Cable shares in favor of the Time Warner Cable Merger. Each of
Legacy Charter and Liberty Broadband obtained stockholder approval during September 2015 for the issuance of the Charter
shares and the Series C Shares, respectively, in accordance with the rules and requirements of the Nasdaq Stock Market. The
issuance of the Series C Shares was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in
reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder. As a result of the issuance of the Series C Shares in
connection with the Transactions, Liberty Interactive’s non-voting economic ownership in Liberty Broadband was 23.5% as
of December 31, 2016.
As discussed in note 4, the Company has an outstanding zero-strike call option on 704,908 Series C Shares which
expires in March 2017. The Company prepaid a premium of $47.9 million in December 2016. Liberty Broadband has the
option to settle in cash or Series C Shares upon expiration of the contract. The Company accounts for the zero-strike call
option as a financial instrument asset due to its settlement provisions. Accordingly, changes in the fair value of the asset are
included in realized and unrealized gains (losses) on financial instruments in the accompanying statement of operations.
Preferred Stock
Liberty Broadband's preferred stock is issuable, from time to time, with such designations, preferences and relative
participating, optional or other rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a
resolution or resolutions providing for the issue of such preferred stock adopted by Liberty Broadband's board of
directors. As of December 31, 2016, no shares of preferred stock were issued.
Common Stock
Liberty Broadband's Series A common stock has one vote per share, Liberty Broadband's Series B common stock
has ten votes per share and Liberty Broadband’s Series C common stock has no votes per share (except as otherwise
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required by applicable law). Each share of the Series B common stock is exchangeable at the option of the holder for one
share of Series A common stock. All series of our common stock participate on an equal basis with respect to dividends and
distributions.
As of December 31, 2016, there were 454 thousand shares of Series A and 2.5 million shares of Series C common
stock reserved for issuance under exercise privileges of outstanding stock options.
(11) Stock-Based Compensation
Included in the accompanying consolidated statements of operations are the following amounts of stock-based
compensation for the years ended December 31, 2016, 2015 and 2014 (amounts in thousands).
Operating expense
Selling, general and administrative
Research and development
Liberty Broadband - Incentive Plans
December 31,
2016
2015
2014
$
$
—
7
5,555
158
5,713
5,978
395
6,380
1
832
166
999
In connection with the Broadband Spin-Off, the holder of an outstanding option or stock appreciation right
(collectively, “Award”) to purchase shares of Liberty common stock on the record date (an “original Liberty Award”)
received an Award to purchase shares of the corresponding series of our Liberty Broadband common stock (a “Liberty
Broadband Award”) and an adjustment to the exercise price and number of shares subject to the original Liberty Award (as so
adjusted, an “adjusted Liberty Award”). Following the Broadband Spin-Off, employees of Liberty hold Awards in both
Liberty common stock and Liberty Broadband common stock. The compensation expense relating to employees of Liberty is
recorded at Liberty. Therefore, compensation expense related to options resulting from the Broadband Spin-Off will not be
recognized in the Company’s consolidated financial statements.
Except as described above, all other terms of an adjusted Liberty Award and a new Liberty Broadband Award
(including, for example, the vesting terms thereof) are in all material respects, the same as those of the corresponding original
Liberty Award.
Pursuant to the Liberty Broadband 2014 Omnibus Incentive Plan, as amended, the Company may grant Awards to
be made in respect of a maximum of 8.4 million shares of Liberty Broadband common stock. Awards generally vest over 4-5
years and have a term of 7-10 years. Liberty Broadband issues new shares upon exercise of equity awards.
Liberty Broadband – Grants of Stock Options
During the year ended December 31, 2016, Liberty Broadband granted 17 thousand options to purchase shares of
Series C common stock to its non-employee directors with a weighted average grant-date fair value of $18.64 per share
which cliff vest over a one year vesting period. There were no options to purchase shares of Series A common stock granted
during the period.
The Company has calculated the grant-date fair value for all of its equity classified awards and any subsequent
remeasurement of its liability classified awards using the Black-Scholes Model. The Company estimates the expected
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term of the Awards based on historical exercise and forfeiture data. For grants made in 2016, 2015 and 2014, the range of
expected terms was 4.6 to 7.3 years. Since Liberty Broadband common stock has not traded on the stock market for a
significant length of time, the volatility used in the calculation for Awards is based on a blend of the historical volatility of
Liberty Broadband and Charter common stock and the implied volatility of publicly traded Liberty Broadband and Charter
options; as the most significant asset within Liberty Broadband, the volatility of Charter was considered in the overall
volatility of Liberty Broadband. For grants made in 2016, 2015 and 2014, the range of volatilities was 26.2% to 28.5%. The
Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject option.
Liberty Broadband – Outstanding Awards
The following table presents the number and weighted average exercise price (“WAEP”) of Awards to purchase
Liberty Broadband common stock granted to certain officers, employees and directors of the Company, as well as the
weighted average remaining life and aggregate intrinsic value of the Awards.
Series A
WAEP
Outstanding at January 1, 2016
Granted
Exercised
Forfeited/Cancelled
Outstanding at December 31, 2016
Exercisable at December 31, 2016
(in thousands)
630
$
— $
$
— $
454
$
448
$
(176)
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
(in years)
(in millions)
32.36
—
32.06
—
32.47
32.32
3.0
2.9
$
$
18
18
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
(in years)
(in millions)
41.09
72.11
31.93
—
42.45
32.81
6.1
3.0
$
$
78
39
Series C
WAEP
Outstanding at January 1, 2016
Granted
Exercised
Forfeited/Cancelled
Outstanding at December 31, 2016
Exercisable at December 31, 2016
(in thousands)
2,761
17
(311)
$
$
$
— $
$
$
2,467
934
The Company had no outstanding Series B options during 2016.
As of December 31, 2016, the total unrecognized compensation cost related to unvested Liberty Broadband Awards
was approximately $15.0 million. Such amount will be recognized in the Company’s consolidated statements of operations
over a weighted average period of approximately 2 years.
As of December 31, 2016, Liberty Broadband reserved 2.9 million shares of Series A and Series C common stock
for issuance under exercise privileges of outstanding stock Awards.
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Liberty Broadband – Exercises
The aggregate intrinsic value of all options exercised during the years ended December 31, 2016, 2015 and 2014
was $14.4 million, $11.2 million, and $1.8 million, respectively.
Liberty Broadband – Restricted Shares
The aggregate fair value of all Series A and Series C restricted shares of Liberty Broadband common stock that
vested during the years ended December 31, 2016, 2015 and 2014 was $674 thousand, $5.8 million, and $172 thousand,
respectively.
As of December 31, 2016, the Company had approximately 27,000 unvested restricted shares of Series A and Series
C Liberty Broadband common stock held by certain directors, officers and employees of the Company with a weighted
average grant-date fair value of $15.30 per share.
Skyhook equity incentive plans
Long-Term Incentive Plans
Skyhook has granted PARs and PSUs to employees, directors, and consultants of Skyhook, pursuant to the LTIPs.
PAR grants under the LTIPs vest over a four or five-year period. On June 30 of each of the fiscal years following the second,
fourth, sixth, and eighth anniversaries of the date of a grant, 25% of the original grant is deemed to have been exercised and
canceled. Upon such date, the holders of such grants receive the appreciation in the value of the grant, if any, from the value
of the grant on the date of its issuance. PSUs, unless otherwise indicated, have the same vesting, exercise, and cancellation
provisions as PARs granted under the plan. Certain of the PARs and the majority of the outstanding PSU grants contain
modifications to the standard vesting, exercise and cancellation provisions. On July 29, 2016, all Skyhook PARs were
converted into PARs granted under the TruePosition LTIP and future awards under the Skyhook LTIP were suspended.
Concurrent with the conversion, Skyhook made certain adjustments to the outstanding TruePosition PARs and PSUs to
standardize and simplify the valuation of awards granted under the TruePosition LTIP. As a result of the name change of
TruePosition, Inc. to Skyhook Holding, Inc., it is expected that the TruePosition Long Term Incentive Plan will be renamed
the Skyhook Holdings Long Term Incentive Plan.
Upon separation from Skyhook, holders of grants are eligible, assuming all conditions are met under the LTIPs, to
receive the appreciation in value of their vested PAR grants and the value of their vested PSU grants as of the date of their
separation that have not been deemed exercised and canceled.
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The following summarizes the PAR and PSU activities under the LTIPs during 2016 (in thousands):
Outstanding at January 1, 2016
Grants
Exercises
Forfeitures
Outstanding prior to conversion and adjustments
Conversions and adjustments
Grants
Exercises
Forfeitures
Outstanding at December 31, 2016
Fair value of outstanding grants
Vested fair value
Weighted average remaining vesting period
TruePosition
Stand-alone
PARs
Stand-alone
PSUs
Skyhook
PARs
894
—
(185)
(4)
705
6,070
4,147
(56)
(154)
10,712
$
$
911
415 $
2.5 years $
160
—
(38)
—
122
413
—
—
—
535
1,588 $
1,084 $
2.1 years
7,061
—
(1,552)
(1,832)
3,677
(3,677)
—
—
—
—
—
—
NA
Grants that are exercised and paid and grants that are forfeited, canceled, or otherwise not paid are available for
grant under the LTIPs.
Grants under the LTIPs may be settled in cash, publicly traded stock of the companies or an affiliate of the
companies, or a combination thereof. Skyhook accounts for grants under the LTIPs as liability instruments. Accordingly,
Skyhook measures the cost of employee services received in exchange for grants based on the current fair value of the grants
and records a liability at the end of each reporting period equivalent to the vested portion of such current fair value.
Skyhook calculates the grant-date fair value and subsequent remeasurement of its liability classified awards using
the Black-Scholes model. Skyhook estimates the expected term of the awards based on historical exercise and forfeiture data.
The expected term for grants made to during 2016 ranged from 0.5 - 7.5 years. The volatility used by Skyhook in the Black-
Scholes model for grants made during 2016 was 30%. Skyhook uses a zero dividend rate and the risk-free rate for Treasury
Bonds with a term similar to that of the subject options, which ranged from 0.6% - 2.3% for grants made in 2016.
As of December 31, 2016 and 2015, $1.7 million and $2.0 million, respectively, are included in other liabilities for
the fair value (Level 2) of the Company's LTIP obligations.
(12) Employee Benefit Plans
Prior to January 1, 2015, Skyhook participated in Liberty’s defined-contribution plan (the “Liberty 401(k) Plan”).
The Liberty 401(k) Plan provided for employees to make contributions by salary reductions to a trust for investment in
Liberty common stock, as well as several mutual funds and/or a self-directed brokerage account pursuant to Section 401(k) of
the Internal Revenue Code.
Beginning January 1, 2015, employees of Skyhook participate in a separate defined-contribution plan administered
by Skyhook (the “TruePosition 401(k) Plan”). The TruePosition 401(k) Plan provides for employees to make contributions
by salary reductions for investment in several mutual funds and/or a self-directed brokerage account pursuant to
Section 401(k) of the Internal Revenue Code. It is anticipated that the TruePosition 401(k) Plan will be renamed the Skyhook
401(k) plan as of March 1, 2017.
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Pursuant to the existing TruePosition 401(k) Plan, Skyhook employees are eligible for 100% matching contributions
for each dollar contributed up to 10%, and 50% matching contributions for each dollar contributed up to 8% of the
employees’ total compensation, subject to certain limitations. For the years ended December 31, 2016, 2015 and 2014,
Skyhook contributed approximately $0.8 million, $1.1 million and $1.5 million respectively.
(13) Related Party Transactions
During the year ended December 31, 2014 certain of Skyhook’s costs and expenses were charged to Skyhook by
Liberty. The amounts due to (from) Liberty and the activities for the year ended December 31, 2014 are summarized as
follows (amounts in thousands):
Payable (receivable) at beginning of year
Costs and expenses charged by Liberty
Amounts (receivable) due under the tax-sharing arrangement
Transfer of related party receivable to (from) note receivable
Payments to Liberty
Amount receivable (due) under the tax-sharing arrangement transferred to Liberty
Broadband
(Receivable) payable at end of year
2014
(5,953)
3,913
(4,094)
5,306
(6,399)
7,227
—
$
$
Prior to the completion of the Broadband Spin-Off, Skyhook was a party to certain tax sharing arrangements with
Liberty (or its former affiliate). Under these tax-sharing arrangements, Skyhook had been obligated to make cash payments to
Liberty (or its former affiliate) in each year Skyhook generated positive taxable income, determined as if Skyhook filed a
separate tax return. The amount of such payment has been equal to the amount of Skyhook’s taxable income (as so
determined) multiplied by the highest corporate tax rate in effect for the applicable tax jurisdiction. If on a separate return
basis, Skyhook would have a net operating loss or net tax credit for a particular year, and such loss or credit could be utilized
on the actual tax returns filed by Liberty (or its former affiliate), then Skyhook would be entitled to reduce current and future
payments to Liberty (or its former affiliate) by the amount of such tax benefit. Skyhook made payments of $3.2 million in
2014 under these tax sharing arrangements. Prior to the completion of the Broadband Spin-Off, Skyhook’s income tax
receivable from Liberty was transferred to Liberty Broadband and the tax sharing arrangement between Liberty and Skyhook
was extinguished.
(14) Commitments and Contingencies
Leases
Skyhook leases various properties under operating leases expiring at various times through 2018. The aggregate
minimum annual lease payments under the noncancelable operating leases as of December 31, 2016 are as follows (amounts
in thousands):
2017
2018
$
$
592
27
619
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Skyhook’s two principal facilities are under lease through December 2017 and January 2018, respectively. Total
rental expense for the years ended December 31, 2016, 2015 and 2014 was $2.4 million, $3.7 million and $3.3 million,
respectively.
Litigation
On May 23, 2012, Skyhook (then known as TruePosition) filed a patent infringement lawsuit in the U.S. District
Court for the District of Delaware against Polaris Wireless, Inc. (“Polaris”), related to the sale by Polaris of systems used to
locate mobile devices. In parallel with the lawsuit, at Polaris’s request, the U.S. Patent and Trademark Office initiated an
Inter Partes Review. Both the District Court and the Patent Trial and Appeal Board ruled adversely to Skyhook and those
rulings were upheld on appeal. No further appeal was taken. During the pendency of the appeal, Polaris filed a motion in the
District Court for an award of approximately $3 million in attorneys’ fees and expenses incurred in defending the
lawsuit. The matter was heard by the Court on October 16, 2015, wherein the court denied the Polaris motion.
On September 10, 2010, Skyhook filed a patent infringement lawsuit in the U.S. District Court for the District of
Massachusetts against Google, Inc. (“Google”). In March 2013, Skyhook amended its lawsuit to add additional claims. In
total, at the time the case was to be tried, Skyhook alleged that Google infringed on eight Skyhook patents involving location
technology and sought an injunction and/or award of damages in an amount to be determined at trial. The case had been
scheduled to be tried before a jury commencing March 9, 2015. However, on March 5, 2015, the parties advised the District
Court that the case has been settled and thereby dismissed the action without costs and without prejudice to the right person,
upon good cause shown within 45 days, to reopen the action if settlement is not consummated. On March 27, 2015, the
parties consummated a final settlement agreement and on April 24, 2015, Google paid Skyhook settlement consideration of
$90 million. In return for payment of the settlement consideration, Google received dismissal of the action with prejudice, a
license to the existing Skyhook patents and patent applications (and their continuations, divisionals, continuations-in-part), a
three-year covenant not to sue (subject to limited exceptions) and a mutual release of claims. The settlement amount of $90
million is recorded net of approximately $29.5 million for legal fees in the statement of operations for the year ended
December 31, 2015.
General Litigation
In the ordinary course of business, the Company and its consolidated subsidiaries are parties to legal proceedings
and claims involving alleged infringement of third-party intellectual property rights, defamation, and other claims. Although
it is reasonably possible that the Company may incur losses upon conclusion of such matters, an estimate of any loss or range
of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy
such contingencies will not be material in relation to the accompanying consolidated financial statements.
Indemnification Claims
In the normal course of business, Skyhook provides indemnification to certain customers against specified claims
that might arise against those customers from the use of Skyhook’s products. To date, Skyhook has not made any significant
reimbursements to any of its customers for any losses related to these indemnification provisions. However, four such claims
are currently pending and are described below. Skyhook is unable to estimate the maximum potential impact of these
indemnification provisions on its future results of operations, although Skyhook’s liabilities in certain of those arrangements
are customarily limited in various respects, including monetarily. Accordingly, no accrual was recorded related to
indemnification claims as of December 31, 2016 or 2015.
One of Skyhook’s former customers, T-Mobile, has made two indemnification claims related to its use of its legacy
U-TDOA service technology. In September, 2008, T-Mobile requested indemnification for damages (including
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Table of Contents
defense costs) that it may incur in a patent infringement action that Emsat Advanced Geolocation, LLC (“Emsat”) filed
against T-Mobile. Skyhook is not a party to the suit and they have denied any obligation to indemnify T-Mobile and believe
that the equipment supplied to T-Mobile is not covered by the patent claims that Emsat is asserting against T-Mobile. T-
Mobile has not yet formally pursued its indemnification claims in a civil court action, but has indicated its intention to do so
after the infringement action is resolved. In March 2014, T-Mobile requested indemnification for damages (including defense
costs) that it may incur in a patent infringement action that Guidance IP LLC (“Guidance”) filed against T-Mobile. Skyhook
is not a party to the suit, though at the time, the entities indicated a willingness to participate in the defense of the action, but
received no response from T-Mobile.
Another Skyhook legacy U-TDOA service customer, AT&T, has made four indemnification claims against
Skyhook. In October 2008, AT&T requested indemnification for damages (including defense costs) that it may incur relating
to the Emsat litigation described in the preceding paragraph (to which AT&T is a party). In June 2009, AT&T requested
indemnification for damages (including defense costs) that it may incur relating to a lawsuit filed against AT&T by Tendler
Cellular of Texas, LLC (“Tendler”) (to which Skyhook is not a party). This action relates to a former subsidiary of Skyhook,
Useful Networks, Inc., whose operations were discontinued in 2010. In June 2011, AT&T requested indemnification for
damages (including defense costs) that it may incur relating to a lawsuit filed against AT&T by Tracbeam, LLC
(“Tracbeam”) (to which Skyhook is not a party). Skyhook has denied that it is obligated to indemnify AT&T with respect to
the Emsat and Tendler cases. AT&T has not yet formally pursued its indemnification claims in a civil court action and it is
unclear at this time whether or not it will do so. The lawsuit filed against AT&T by Guidance, was resolved by the payment
to AT&T of $55 thousand during October 2015. With respect to Tracbeam, AT&T has determined that the total allocated
contribution attributable to Skyhook-related products is $132 thousand and has invoiced Skyhook accordingly. Skyhook has
informed AT&T that it believes that the allocation method employed by AT&T is flawed and that the actual amount owed is
less than $132 thousand. In general, Skyhook is unable to estimate the maximum potential impact of these indemnification
provisions on its future results of operations, although those liabilities in certain of those arrangements are customarily
limited in various respects, including monetarily.
Off-Balance Sheet Arrangements
Liberty Broadband did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital
resources.
(15) Segment Information
Liberty Broadband identifies its reportable segments as (A) those consolidated companies that represent 10% or
more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose
share of earnings or losses represent 10% or more of Liberty Broadband’s annual pre-tax earnings (losses).
Liberty Broadband evaluates performance and makes decisions about allocating resources to its operating segments
based on financial measures such as revenue, Adjusted OIBDA. In addition, Liberty Broadband reviews nonfinancial
measures such as subscriber growth.
Liberty Broadband defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general
and administrative expenses (excluding stock-based compensation). Liberty Broadband believes this measure is an important
indicator of the operational strength and performance of its businesses, including each business’s ability to service debt and
fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of
performance excludes depreciation and amortization, stock based compensation, separately reported litigation settlements
and restructuring and impairment charges that are included in the measurement of operating income
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Table of Contents
pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating
income, net earnings, cash flow provided by operating activities and other measures of financial performance prepared in
accordance with GAAP. Liberty Broadband generally accounts for intersegment sales and transfers as if the sales or transfers
were to third parties, that is, at current prices.
For the year ended December 31, 2016, Liberty Broadband has identified the following consolidated company and
equity method investment as its reportable segments:
· Skyhook— a wholly owned subsidiary of the Company that provides a Wi-Fi based location platform focused on
providing positioning technology and contextual location intelligence solutions.
· Charter—an equity method investment that is one of the largest providers of cable services in the United States,
offering a variety of entertainment, information and communications solutions to residential and commercial
customers.
Liberty Broadband’s operating segments are strategic business units that offer different products and services. They
are managed separately because each segment requires different technologies, distribution channels and marketing strategies.
The accounting policies of the segments that are also consolidated companies are the same as those described in the
Company’s summary of significant accounting policies in the Company’s annual financial statements. For periods in which
Liberty Broadband owned Charter shares and warrants, we have included amounts attributable to Charter in the tables below.
Although Liberty Broadband owns less than 100% of the outstanding shares of Charter, 100% of the Charter amounts are
included in the schedule below and subsequently eliminated in order to reconcile the account totals to the Liberty Broadband
consolidated financial statements.
Performance Measures
Skyhook
Charter
Corporate and other
Eliminate equity method
affiliate
Consolidated Liberty
2016
Revenue
Adjusted
OIBDA
Years ended December 31,
2015
Revenue
amounts in thousands
Adjusted
OIBDA
2014
Revenue
$
30,586
(2,681)
91,182
43,600
69,045
29,003,000
—
29,033,586
10,506,000
(8,761)
10,494,558
9,754,000
—
9,845,182
3,317,000
(11,958)
3,348,642
9,108,000
—
9,177,045
Adjusted
OIBDA
(2,152)
3,128,000
(1,559)
3,124,289
(29,003,000)
(10,506,000)
(9,754,000)
(3,317,000)
(9,108,000)
(3,128,000)
Broadband
$
30,586
(11,442)
91,182
31,642
69,045
(3,711)
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Table of Contents
Other Information
Skyhook
Charter
Corporate and other
Eliminate equity method
affiliate
Consolidated Liberty
Broadband
December 31, 2016
Total
assets
Investments
in affiliates
Capital
expenditures
Total
assets
December 31, 2015
Investments
in affiliates
Capital
expenditures
$
30,463
149,067,000
9,560,497
158,657,960
—
—
9,315,253
9,315,253
amounts in thousands
267
61,395
5,325,000
—
5,325,267
39,316,000
3,504,346
42,881,741
—
—
2,372,699
2,372,699
731
1,840,000
—
1,840,731
(149,067,000)
—
(5,325,000)
(39,316,000)
—
(1,840,000)
$
9,590,960
9,315,253
267
3,565,741
2,372,699
731
Revenue by Geographic Area
United States
Other countries
Long-lived Assets by Geographic Area
United States
Other countries
2016
Years ended December 31,
2015
amounts in thousands
$ 27,806 87,739 66,045
3,000
69,045
2,780
$ 30,586
3,443
91,182
2014
December 31,
2016
2015
amounts in thousands
710 1,248
$
—
—
1,248
710
$
IV-48
Table of Contents
The following table provides a reconciliation of segment Adjusted OIBDA to earnings (loss) from continuing
operations before income taxes:
Years ended December 31,
2016
2015
2014
Consolidated segment Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Gain on legal settlement
Impairment of intangible assets
Operating income (loss)
Interest expense
Dividend and interest income
Share of earnings (loss) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net
Gain (loss) on dilution of investment in affiliate
Other, net
Earnings (loss) from continuing operations before income taxes
IV-49
$
(11,442)
(5,713)
(4,005)
—
—
(21,160)
(14,956)
5,020
641,544
94,122
770,766
336
$ 1,475,672
amounts in thousands
31,642
(6,380)
(6,088)
60,450
(20,669)
58,955
(7,424)
3,797
(120,962)
2,619
(7,198)
158
(70,055)
(3,711)
(999)
(9,043)
6,000
(35,221)
(42,974)
(1,138)
5,426
(127,573)
51,189
(87,158)
(63)
(202,291)
Table of Contents
(16) Quarterly Financial Information (Unaudited)
st
1
Quarter
nd
2
rd
3
th
4
Quarter
Quarter
Quarter
amounts in thousands
2016:
Revenue
Operating income (loss)
Net earnings (loss) attributable to Liberty Broadband Corporation Series A,
Series B and Series C stockholders
Basic earnings (loss) attributable to Liberty Broadband Corporation
Series A, Series B and Series C stockholders per common share
Diluted earnings (loss) attributable to Liberty Broadband Corporation
Series A, Series B and Series C stockholders per common share
$
3,831
$ (9,340)
2,966
(10,737)
20,616
6,624
3,173
(7,707)
$ (22,241) 890,154
3,789
45,601
$
(0.22)
6.31
0.02
0.25
$
(0.22)
6.28
0.02
0.25
2015:
Revenue
Operating income (loss)
Net earnings (loss) attributable to Liberty Broadband Corporation Series A,
Series B and Series C stockholders
Basic earnings (loss) attributable to Liberty Broadband Corporation
Series A, Series B and Series C stockholders per common share
Diluted earnings (loss) attributable to Liberty Broadband Corporation
Series A, Series B and Series C stockholders per common share
st
1
Quarter
nd
2
rd
3
Quarter
Quarter
amounts in thousands
th
4
Quarter
$ 13,316
$ 50,471
12,645
(3,414)
15,225
288
49,996
11,610
$ 5,318
(7,809)
(19,295)
(28,401)
$
0.05
(0.08)
(0.19)
(0.28)
$
0.05
(0.08)
(0.19)
(0.28)
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 28, 2017
Date: February 28, 2017
LIBERTY INTERACTIVE CORPORATION
By /s/Gregory B. Maffei
Gregory B. Maffei
Chief Executive Officer and President
By /s/Mark D. Carleton
Mark D. Carleton
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/John C. Malone
John C. Malone
/s/Gregory B. Maffei
Gregory B. Maffei
/s/Mark D. Carleton
Mark D. Carleton
/s/Richard N. Barton
Richard N. Barton
/s/Michael A. George
Michael A. George
/s/M. Ian G. Gilchrist
M. Ian G. Gilchrist
/s/Evan D. Malone
Evan D. Malone
/s/David E. Rapley
David E. Rapley
/s/M. LaVoy Robison
M. LaVoy Robison
/s/Larry E. Romrell
Larry E. Romrell
Chairman of the Board and Director
February 28, 2017
Director, Chief Executive Officer
and President
February 28, 2017
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
February 28, 2017
Director
Director
Director
Director
Director
Director
Director
IV-51
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
Table of Contents
/s/Andrea L. Wong
Andrea L. Wong
/s/Mark Vadon
Mark Vadon
Director
Director
February 28, 2017
February 28, 2017
IV-52
Table of Contents
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in
Item 601 of Regulation S-K):
2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1
2.2
2.3
2.4
Reorganization Agreement, dated as of August 15, 2014, between Liberty Interactive Corporation and
Liberty TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current
Report on Form 8-K filed on September 3, 2014 (File No. 001-33982)).
Agreement and Plan of Reorganization, dated as of August 16, 2015, by and among Liberty Interactive
Corporation, zulily, inc., Mocha Merger Sub, Inc., and Ziggy Merger Sub, LLC (incorporated by reference
to Exhibit 2.1 to zulily, inc.’s Current Report on Form 8-K filed on August 17, 2015 (File No. 001-36188)
(the “Reorganization Agreement”)).
Reorganization Agreement, dated as of July 15, 2016, between Liberty Interactive Corporation and
CommerceHub, Inc. (incorporated by reference to Exhibit 2.1 to CommerceHub, Inc.’s Current Report on
Form 8-K filed on July 26, 2016 (File No. 001-37840) (the “CommerceHub 8-K”)).
Reorganization Agreement, dated as of October 26, 2016, between Liberty Interactive Corporation and
Liberty Expedia Holdings, Inc. (incorporated by reference to Exhibit 2.1 to Post-Effective Amendment
No. 1 to Liberty Expedia Holdings, Inc.’s Registration Statement on Form S-4 filed on November 4, 2016
(File No. 333-210377)).
3 - Articles of Incorporation and Bylaws:
3.1
3.2
3.3
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to the Registrant's Form 8-A filed on June 4, 2015 (File No. 001-33982) (the “Form 8-
A”)).
Certificate of Amendment to the Restated Certificate of Incorporation of Liberty Interactive Corporation
(incorporated by reference to Exhibit 3.2 to the Form 8-A).
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed on August 6, 2015 (File No. 001-33982)).
4 - Instruments Defining the Rights to Securities Holders, including Indentures:
4.1
4.2
4.3
Form of Specimen certificate for shares of the Registrant's Series A QVC Group common stock, par value
$.01 per share (incorporated by reference to Exhibit 4.1 to the Form 8-A).
Form of Specimen certificate for shares of the Registrant's Series B QVC Group common stock, par value
$.01 per share (incorporated by reference to Exhibit 4.2 to the Form 8-A).
Specimen certificate for shares of the Registrant's Series A Liberty Ventures common stock, par value $.01
per share (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-4
filed on April 3, 2012 (File No. 333-180543) (the “Liberty S-4”)).
IV-53
Table of Contents
4.4
4.5
Specimen certificate for shares of the Registrant's Series B Liberty Ventures common stock, par value $.01
per share (incorporated by reference to Exhibit 4.4 to the Liberty S-4).
The Registrant undertakes to furnish to the Securities and Exchange Commission, upon request, a copy of
all instruments with respect to long-term debt not filed herewith.
10 - Material Contracts:
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Liberty Interactive Corporation 2000 Incentive Plan (As Amended and Restated Effective November 7,
2011) (the "2000 Incentive Plan") (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ending September 30, 2011 filed on November 8, 2011 (File
No. 001-33982) (the “Liberty 2011 10-Q”)).
Amendment to the 2000 Incentive Plan (effective as of August 5, 2013) (incorporated by reference to
Exhibit 10.3 to the Liberty Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2013 filed on November 5, 2013) (File No. 001-33982) (the “Liberty 2013 10-Q”).
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated Effective November 7,
2011) (the "2007 Incentive Plan") (incorporated by reference to Exhibit 10.6 to the Liberty 2011 10-Q).
Amendment to the 2007 Incentive Plan (effective as of August 5, 2013) (incorporated by reference to
Exhibit 10.4 to the Liberty 2013 10-Q).
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated Effective November 7,
2011) (the “2010 Incentive Plan”) (incorporated by reference to Exhibit 10.7 to the Liberty 2011 10-Q).
Amendment to the 2010 Incentive Plan (effective August 5, 2013) (incorporated by reference to Exhibit
10.5 to the Liberty 2013 10-Q).
Liberty Interactive Corporation 2002 Nonemployee Director Incentive Plan (As Amended and Restated
Effective November 7, 2011) (the "2002 Directors Plan") (incorporated by reference to Exhibit 10.8 to the
Liberty 2011 10-Q).
Amendment to the 2002 Directors Plan (effective as of August 5, 2013) (incorporated by reference to
Exhibit 10.1 to the Liberty 2013 10-Q).
Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan (amended and restated as of
December 17, 2015) (the “2011 Directors Plan”) (incorporated by reference to Exhibit 10.9 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on February 26,
2016 (File No. 001-33982) (the “Liberty 2015 10-K”)
10.10
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of March 31, 2015) (the
“2012 Incentive Plan”) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on
Form 10-Q for the quarterly period ended on March 31, 2015 filed on May 8, 2015 (File No. 001-33982)).
10.11
Liberty Interactive Corporation 2016 Omnibus Incentive Plan (incorporated by reference to Annex A to the
Registrant’s Proxy Statement on Schedule 14A filed on July 8, 2016 (File No. 001-33982)).
IV-54
Table of Contents
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 filed on February 28,
2014 (File No. 001-33982) (the “Liberty 2013 10-K”)).
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.14 to the Liberty 2013
10-K).
Form of Non-Qualified Stock Option Agreement under the 2000 Incentive Plan, the 2007 Incentive Plan
and the 2010 Incentive Plan [for certain designated award recipients] (incorporated by reference to Exhibit
10.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2011 filed on
February 23, 2012 (File No. 001-33982) (the “Liberty 2011 10-K”)).
Form of Restricted Stock Award Agreement under the 2000 Incentive Plan, the 2007 Incentive Plan and the
2010 Incentive Plan [for certain designated award recipients] (incorporated by reference to Exhibit 10.19 to
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 25,
2010 (File No. 001-33982) (the “Liberty 2009 10-K)).
Form of Stock Appreciation Rights Agreement under the 2000 Incentive Plan and the 2007 Incentive Plan
(incorporated by reference to Exhibit 10.20 to the Liberty 2009 10-K).
Form of Non-Qualified Stock Option Agreement under the 2002 Directors Plan and the 2011 Directors Plan
(incorporated by reference to 10.19 to the Liberty 2011 10-K).
Form of Restricted Stock Award Agreement under the 2002 Directors Plan and the 2011 Directors Plan
(incorporated by reference to 10.20 to the Liberty 2011 10-K).
Form of Stock Appreciation Rights Agreement under the 2002 Directors Plan (incorporated by reference to
Exhibit 10.22 to the Liberty 2009 10-K).
Non-Qualified Stock Option Agreement under the 2007 Incentive Plan for Michael George dated March 2,
2011 (incorporated by reference to 10.22 to the Liberty 2011 10-K).
Amended and Restated Non-Qualified Stock Option Agreement under the 2000 Incentive Plan for Gregory
B. Maffei (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 2012 filed on August 8, 2012 (File No. 001-33982) (the “Liberty 2012
10-Q”)).
Amended and Restated Non-Qualified Stock Option Agreement under the 2007 Incentive Plan for Gregory
B. Maffei (incorporated by reference to Exhibit 10.2 to the Liberty 2012 10-Q).
Employment Agreement between Michael George and QVC, effective December 16, 2015 (incorporated by
reference to Exhibit 10.23 to the Liberty 2015 10-K).
Employment Agreement between Gregory B. Maffei and Liberty Interactive Corporation dated December
29, 2014 (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2014 filed on February 27, 2015 (File No. 001-33982)).
IV-55
Table of Contents
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Non-Qualified Stock Option Agreement under the Liberty Interactive Corporation 2010 Incentive Plan for
Gregory B. Maffei, effective December 24, 2014 (incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed on August
5, 2015 (File No. 001-33982)).
Letter Agreement regarding personal use of the Liberty aircraft, dated as of February 5, 2013, between
Gregory B. Maffei and Liberty Media Corporation (incorporated by reference to Exhibit 10.18 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on February 28,
2013 (File No. 001-33982)).
Letter Agreement regarding personal use of Liberty Media’s aircraft, dated as of November 11, 2015,
between Gregory B. Maffei and Liberty Media Corporation (incorporated by reference to Exhibit 10.27 to
the Liberty 2015 10-K).
Agreement Regarding LINTA Equity Awards dated September 23, 2011, between Liberty Interactive
Corporation and Gregory B. Maffei (incorporated by reference to Exhibit 10.25 to the Liberty 2011 10-K).
Call Agreement, dated as of February 9, 1998 (the "Call Agreement"), between Liberty Interactive
Corporation (as successor of Liberty Interactive LLC (f/k/a Liberty Media LLC, “Old Liberty”), as assignee
of Tele-Communications, Inc.) and the Malone Group (incorporated by reference to Exhibit 10.26 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on February 27,
2009 (File No. 001-33982)).
Letter, dated as of March 5, 1999, from Tele-Communications, Inc. and Old Liberty addressed to Mr.
Malone and Leslie Malone relating to the Call Agreement (incorporated by reference to Exhibit 10.27 to the
Liberty 2009 10-K).
Form of Indemnification Agreement between the Registrant and its executive officers/directors
(incorporated by reference to Exhibit 10.29 to the Liberty 2011 10-K)
Tax Sharing Agreement, dated September 23, 2011, between Liberty Interactive Corporation, Liberty
Interactive LLC and Liberty Media Corporation (as assignee of Starz (f/k/a Liberty Media Corporation))
(incorporated by reference to Exhibit 10.4 to Post-Effective Amendment No. 1 to Starz's Registration
Statement on Form S-4 filed on September 23, 2011 (File No. 333-171201) (the “Starz S-4”)).
Services Agreement, dated as of September 23, 2011, by and between Liberty Interactive Corporation and
Liberty Media Corporation (as assignee of Starz (f/k/a Liberty Media Corporation)) (incorporated by
reference to Exhibit 10.5 to the Starz S-4).
Tax Sharing Agreement, dated as of August 27, 2014, between Liberty Interactive Corporation and Liberty
TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on September 3, 2014 (File No. 001-33982)).
Amendment to Tax Sharing Agreement, dated as of October 3, 2014, between Liberty Interactive
Corporation and Liberty TripAdvisor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 2015 filed on May
8, 2015 (File No. 001-33982)).
10.36
Tax Sharing Agreement, dated as of July 22, 2016, between Liberty Interactive Corporation and
CommerceHub, Inc. (incorporated by reference to Exhibit 10.1 to the CommerceHub 8-K).
IV-56
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10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
Tax Sharing Agreement, dated as of November 4, 2016, between Liberty Interactive Corporation and
Liberty Expedia Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed on November 7, 2016 (File No. 001-33982)).
Indenture dated as of September 25, 2009 among QVC, the guarantors party thereto and U.S. Bank
National Association, as trustee, as supplemented by that Supplemental Indenture dated as of June 30, 2011
(incorporated by reference to Exhibit 10.1 to QVC's Registration Statement on Form S-4 filed on October
19, 2012 (File No. 333-184501) (the “QVC S-4”)).
Indenture dated as of March 23, 2010 among QVC, the guarantors party thereto and U.S. Bank National
Association, as trustee, as supplemented by that Supplemental Indenture dated as of June 30, 2011
(incorporated by reference to Exhibit 10.2 to the QVC S-4).
Indenture dated as of July 2, 2012 among QVC, the guarantors party thereto and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 to the QVC S-4).
Indenture dated as of March 18, 2013 among QVC, Inc., the guarantors party thereto and U.S. Bank
National Association (incorporated by reference to Exhibit 10.2 to QVC's Quarterly Report on Form 10-Q
filed on May 9, 2013 (File No. 333-184501)).
Form of the Indenture dated as of March 18, 2014 among QVC, Inc., the guarantors party thereto and U.S.
Bank National Association (incorporated by reference to Exhibit 4.1 to QVC’s Registration Statement on
Form S-4 filed on April 30, 2014 (File No. 333-195586)).
Indenture dated as of August 21, 2014 among QVC, Inc., the guarantors party thereto and U.S. Bank
National Association (incorporated by reference to Exhibit 4.1 to QVC’s Registration Statement on Form S-
4 filed on October 10, 2014 (File No. 333-199254)).
Second Amended and Restated Credit Agreement, dated as of March 9, 2015, among QVC, Inc., as
Borrower, J.P. Morgan Securities LLC, as Lead Arranger and Lead Bookrunner, JPMorgan Chase Bank,
N.A., as Administrative Agent, Wells Fargo Bank, N.A., and BNP Paribas, as Syndication Agents, and the
parties named therein as Lenders, Issuing Banks, Documentation Agents and Co-Lead Arrangers and Co-
Bookrunners (incorporated by reference to Exhibit 4.1 to QVC’s Current Report on Form 8-K (File No.
333-184501) as filed on March 13, 2015).
Third Amended and Restated Credit Agreement, dated as of June 23, 2016, among QVC, Inc. and zulily,
llc, as Borrowers, JPMorgan Chase Bank, N.A., as Lead Arranger, Lead Bookrunner and Administrative
Agent and the parties named therein as Lenders, Co-Bookrunners, Co-Syndication Agents and Co-
Documentation Agents (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K filed on June 28, 2016 (File No. 001-33982)).
Tender and Support Agreement, dated as of August 16, 2015, by and among Darrell Cavens, Mark Vadon,
Liberty Interactive Corporation, Mocha Merger Sub, Inc. and zulily, inc. (incorporated by reference to
Exhibit 99.1 to zulily, inc.’s Current Report on Form 8-K filed on August 17, 2015 (File No. 001-36188)).
Amended and Restated Investment Agreement, dated May 28, 2015, by and among Liberty Broadband
Corporation, Liberty Interactive Corporation, JANA Nirvana Master Fund, Ltd., JANA Master Fund, Ltd.,
and Coatue Offshore Master Fund, Ltd. (incorporated by reference to Exhibit 10.5 to Liberty Broadband
Corporation’s Current Report on Form 8-K filed on May 29, 2015 (File No. 001-36713) (the “LBC 8-K”).
IV-57
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10.48
10.49
10.50
10.51
10.52
10.53
Amended and Restated Assignment and Assumption Agreement, dated May 29, 2015, by and among
Liberty Broadband Corporation, Liberty Interactive Corporation, Soroban Master Fund LP, and Soroban
Opportunities Master Fund LP (incorporated by reference to Exhibit 10.8 to the LBC 8-K).
Liberty Interactive Corporation Nonemployee Director Deferred Compensation Plan (incorporated by
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
on March 31, 2015 filed on May 8, 2015 (File No. 001-33982)).
zulily, inc. 2009 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to zulily,
inc.’s Registration Statement on Form S-1 filed on October 8, 2013 (File No. 333-191617)).
zulily, inc. 2013 Equity Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to zulily, inc.’s
Registration Statement on Form S-1 filed on October 17, 2013 (File No. 333-191617)).
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.48 to the Liberty
2015 10-K).
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.49 to the Liberty 2015
10-K).
21
Subsidiaries of Liberty Interactive Corporation.*
23.1
23.2
31.1
31.2
Consent of KPMG LLP.*
Consent of KPMG LLP.*
Rule 13a-14(a)/15d - 14(a) Certification.*
Rule 13a-14(a)/15d - 14(a) Certification.*
32
Section 1350 Certification.**
99.1
99.2
99.3
Unaudited Attributed Financial Information for Tracking Stock Groups.*
Reconciliation of Liberty Interactive Corporation Net Assets and Net Earnings to Liberty Interactive LLC
Net Assets and Net Earnings. **
List of Omitted Schedules and Exhibits to the Reorganization Agreement (incorporated by reference to
Exhibit 99.1 to Liberty Interactive Corporation’s Current Report on Form 8-K (File No. 001-33982) as filed
on August 19, 2015).
101.INS
XBRL Instance Document.*
101.SCH
XBRL Taxonomy Extension Schema Document.*
101.CAL
XBRL Taxonomy Calculation Linkbase Document.*
101.LAB
XBRL Taxonomy Label Linkbase Document.*
101.PRE
XBRL Taxonomy Presentation Linkbase Document.*
IV-58
Table of Contents
101.DEF
XBRL Taxonomy Definition Document.*
* Filed herewith.
** Furnished herewith.
IV-59
A table of subsidiaries of Liberty Interactive Corporation is set forth below, indicating as to each the state or
jurisdiction of organization and the names under which such subsidiaries do business. Subsidiaries not included
in the table are inactive or, considered in the aggregate as a single subsidiary, would not constitute a significant
subsidiary.
As of December 31, 2016
Exhibit 21
Entity Name
Domicile
1227844 Ontario Ltd.
Affiliate Distribution & Mktg., Inc.
Affiliate Investment, Inc.
Affiliate Relations Holdings, Inc.
Alta Wind CL II, LLC
Alta Wind CL IV, LLC
AMI 2, Inc.
ASO Holdings Company LLC
BCY Holdings Inc.
Big Horn Alternative Energy, LLC
California Voices, LLC (fka QVC Voices, LLC)
CDirect Mexico I, Inc.
CDirect Mexico II, Inc.
Celebrate Interactive LLC
Centennial Rural Development, inc.
Cool Kicks Media, LLC
Diamonique Canada Holdings, Inc.
DMS DE, Inc.
ER Development International, Inc. (dba QVC International
Development)
ER Marks, Inc.
Evite, Inc.
Ontario
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
PA
DE
DE
GC Marks, Inc. (fka TATV, Inc.)
IC Marks, Inc.
IM Experience, Inc.
Influence Marketing Corp (dba QVC @ theMall) [Unlimited
Liability Corp.]
Influence Marketing Services, Inc.
Innovative Retailing, Inc.
iQVC GmbH
Liberty Acorns, LLC
Liberty Alta IV, Inc.
Liberty Alta, Inc.
Liberty Alternative Energy, LLC
Liberty CDE Investments, Inc.
Liberty Clean Fuels 2, LLC
Liberty Clean Fuels, Inc.
Liberty Digital Commerce, LLC
Liberty Interactive Advertising, LLC (dba Liberty Advertising)
Liberty Interactive LLC
Liberty Israel Venture Fund II, LLC
Liberty Quid, LLC
Liberty QVC Holding, LLC
Liberty Solar Energy, LLC
Liberty USA Holdings, LLC
Liberty USVI Energy, Inc.
LIC Britco, LLC
LIC Israel Investment, LLC
LIC Sound, LLC
DE
DE
PA
Nova Scotia
Ontario
DE
Germany
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
LIC Tree 2, LLC
LIC Tree, LLC
LIC Ventures Marginco
LMC Lockerz, LLC
LMC Social, LLC
LV Basket Marginco, LLC
LV Bridge, LLC
Monroe Fuels Company, LLC
NSTBC, Inc.
Provide Gifts, Inc.
QC Marks, Inc.
QDirect Ventures, Inc. (fka Qdirect, Inc.)
QExhibits, Inc.
QHealth, Inc.
QLocal, Inc. (fka QVC Local, Inc.)[dba QVC Productions; QVC
Remote Productions]
QVC Brazil Holdings II, S.à.r.l.
QVC Britain [English Unlimited Liability Company]
QVC Britain I Limited [English limited liability company]
QVC Britain I, LLC (fka QVC Britain I, Inc.)
QVC Britain II, LLC (fka QVC Britain II, Inc.)
QVC Britain III, Inc.
QVC Call Center GmbH & Co. KG
QVC Call Center Vërwaltungs-GmbH
QVC Cayman Holdings LLC
QVC Cayman, Ltd.
QVC Chesapeake, Inc.
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
Luxembourg
UK
UK
DE
DE
DE
Germany
Germany
DE
Cayman
VA
QVC China Holdings Limited
QVC China Licensing, Inc.(fka AI 2, Inc.)
QVC China, Inc.
QVC Delaware, Inc.
QVC Deutschland GP, Inc.
QVC Deutschland Holdings LLC
QVC eDistribution Inc. & Co. KG
QVC eProperty Management GmbH & Co. KG
QVC eService Inc. & Co. KG
QVC France Holdings, S.à.r.l.
QVC France SAS
QVC Germany I LLC (fka QVC Germany I, Inc.)
QVC Germany II LLC (fka QVC Germany II, Inc.)
QVC Global DDGS, Inc.
QVC Global Holdings I, Inc.
QVC Global Holdings II, Inc.
QVC Grundstücksverwaltungs GmbH
QVC GV Real Estate GmbH & Co. KG
QVC Handel LLC & Co. KG
QVC HK Holdings, LLC
QVC Iberia, S.L.
QVC India, Ltd.
QVC Information and Technologies (Shenzhen) Co., Ltd
QVC International Finance SRL LLC
QVC International Ltd. (fka QVC International LLC) (fka QVC
International, Inc.)
QVC International Management GP LLC
Hong Kong
DE
DE
DE
DE
DE
Germany
Germany
Germany
Luxembourg
France
DE
DE
DE
DE
DE
Germany
Germany
Germany
DE
Spain
DE
China
Barbados
Bermuda
DE
QVC Italia S.r.l. [Italian limited liability company]
QVC Italy Holdings, LLC
QVC Japan Services, LLC (fka QVC Japan Services, Inc.)
QVC Japan, Inc.
QVC Lux Holdings, LLC
QVC Mexico II, Inc.
QVC Mexico III, Inc.
QVC Mexico, Inc.
QVC of Thailand, Inc.
QVC Ontario Holdings, LLC
QVC Ontario, LLC
QVC Pension Trustee Limited
QVC Poland Global Services sp. z.o.o.
QVC Properties, Ltd.
QVC Realty, Inc.
QVC Rocky Mount, Inc.
QVC RS Naples, Inc.
QVC San Antonio, LLC (fka QVC San Antonio, Inc.)
QVC Satellite, Inc.
QVC Shop International, Inc. (fka EZShop International, Inc.)
QVC St. Lucie, Inc.
QVC STT Holdings, LLC
QVC Studio GmbH
QVC Suffolk, LLC (fka QVC Suffolk, Inc.) (fka CVN Distribution
Co., Inc.; C.O.M.B. Distribution Co.)
QVC UK (formerly QVC)
QVC UK Holdings Limited
Italy
DE
DE
Japan
DE
DE
DE
DE
DE
DE
DE
UK
Poland
UK
PA
NC
FL
TX
Japan
DE
FL
DE
Germany
VA
England-Wales
England-Wales
QVC Vendor Development, Inc.
QVC, Inc.
QVC-QRT, Inc.
RCM6, LLC
RS Marks, Inc.
RS Mebane, Inc.
RS Myrtle Beach, Inc.
Savor North Carolina, Inc.
Send the Trend, Inc.
TOBH, Inc.
Triple Z Logistics, Inc.
zulily Canada, inc.
zulily Hong Kong Limited
zulily Ireland Limited
zulily UK Ltd.
zulily, llc (f/k/a zulily, Inc.)
DE
DE
DE
Colorado
DE
NC
SC
NC
DE
DE
DE
Britsh Columbia
Hong Kong
Ireland
UK
DE
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Liberty Interactive Corporation:
We consent to the incorporation by reference in the following registration statements of Liberty Interactive Corporation and
subsidiaries (the Company) of our reports dated February 28, 2017, with respect to the consolidated balance sheets of the
Company as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive earnings
(loss), cash flows, and equity for each of the years in the three-year period ended December 31, 2016, and the effectiveness
of internal control over financial reporting as of December 31, 2016, which reports appear in the December 31, 2016 annual
report on Form 10‑K of the Company.
Description
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
Registration
Statement No.
333-134114
333-134115
333-142626
333-171192
333-171193
333-172512
333-176989
333-177840
333-177841
333-177842
333-184901
333-184905
333-184904
333-184902
333-184903
333-183434
Description
Liberty Interactive Corporation 2002 Nonemployee Director Incentive Plan (As
Amended and Restated Effective November 7, 2011), as amended
Liberty Interactive Corporation 2000 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2000 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Media 401(k) Savings Plan
Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan
(amended and restated as of December 17, 2015)
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of
March 31, 2015)
Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan
(amended and restated as of December 17, 2015)
Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan
(amended and restated as of December 17, 2015)
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2007 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
333-183433
333-183432
333‑183253
333-201010
333-202436
333-204879
333-207326
333-209872
333-210662
Liberty Interactive Corporation 2002 Nonemployee Director Incentive Plan (As
Amended and Restated Effective November 7, 2011), as amended
Liberty Interactive Corporation 2000 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Media 401(k) Savings Plan
Liberty Interactive Corporation 2010 Incentive Plan (As Amended and Restated
Effective November 7, 2011), as amended
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of
March 31, 2015)
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of
March 31, 2015)
zulily, inc. 2009 Equity Incentive Plan and zulily, inc. 2013 Equity Plan
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of
March 31, 2015)
Liberty Interactive Corporation 2012 Incentive Plan (Amended and Restated as of
March 31, 2015)
333-214681
Liberty Interactive Corporation 2016 Omnibus Incentive Plan
/s/ KPMG LLP
Denver, Colorado
February 28, 2017
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
The Board of Directors
Liberty Broadband Corporation:
We consent to the use of our report dated February 17, 2017, with respect to the consolidated balance sheets
of Liberty Broadband Corporation as of December 31, 2016 and 2015, and the related consolidated
statements of operations, comprehensive earnings (loss), cash flows, and equity for each of the years in the
three-year period ended December 31, 2016, included herein.
Denver, Colorado
February 28, 2017
/s/ KPMG LLP
Exhibit 31.1
I, Gregory B. Maffei, certify that:
1. I have reviewed this annual report on Form 10-K of Liberty Interactive Corporation;
CERTIFICATION
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements and other financial information included in this annual report
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the
period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 28, 2017
/s/ GREGORY B. MAFFEI
Gregory B. Maffei
President and Chief Executive
Officer
Exhibit 31.2
I, Mark D. Carleton, certify that:
1. I have reviewed this annual report on Form 10-K of Liberty Interactive Corporation;
CERTIFICATION
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements and other financial information included in this annual report
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the
period covered by this annual report based on such evaluation; and
d) disclosed in this annual report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 28, 2017
/s/ MARK D. CARLETON
Mark D. Carleton
Chief Financial Officer
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title
18, United States Code), each of the undersigned officers of Liberty Interactive Corporation, a Delaware corporation (the
"Company"), does hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2016 (the "Form 10-K") of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 28, 2017
Date: February 28, 2017
/s/ GREGORY B. MAFFEI
Gregory B. Maffei
President and Chief Executive Officer
/s/ MARK D. CARLETON
Mark D. Carleton
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the
Form 10-K or as a separate disclosure document.
Exhibit 99.1
Unaudited Attributed Financial Information for Tracking Stock Groups
Our QVC Group common stock is intended to reflect the separate performance of our QVC Group, which, subsequent to the
reattribution, is comprised of our consolidated subsidiaries, QVC, Inc. (“QVC”) and zulily (defined below) (as of October 1, 2015),
and our interest in HSN, Inc. Our Liberty Ventures common stock is intended to reflect the separate performance of our Ventures
Group which, consists of our online commerce businesses, Bodybuilding.com, LLC ("Bodybuilding") (through November 4, 2016),
CommerceHub, Inc. (then, Commerce Technologies, Inc.) (“CommerceHub”) (through July 22, 2016), Evite, Inc. (“Evite”),
Provide Commerce, Inc. (“Provide”) (through December 31, 2014) and Backcountry.com, Inc. ("Backcountry") (through June 30,
2015) (collectively, the “Digital Commerce” businesses), interests in FTD Companies, Inc. (“FTD”), LendingTree, Inc.
(“LendingTree”), Liberty Broadband Corporation (“Liberty Broadband”), and available-for-sale securities Charter Communications,
Inc. (“Charter”), Interval Leisure Group, Inc. and Time Warner Inc.
As discussed in note 2 to the accompanying consolidated financial statements, on October 3, 2014, the QVC Group (referred
to as the “Interactive Group” prior to the reattribution) attributed to the Ventures Group its Digital Commerce businesses. In
connection with the reattribution, each holder of Liberty Interactive common stock received 0.14217 of a share of the corresponding
series of Liberty Ventures common stock for each share of Liberty Interactive common stock held as of the record date, with cash
paid in lieu of fractional shares. The distribution date for the dividend was on October 20, 2014, and the Liberty Interactive
common stock began trading ex-dividend on October 15, 2014. The Interactive Group is referred to as the QVC Group subsequent
to the reattribution. The reattribution of the Digital Commerce businesses is presented on a prospective basis from the date of the
reattribution in Liberty’s consolidated financial statements, with October 1, 2014 used as a proxy for the date of the reattribution.
Additionally, as discussed in note 6 and note 9 of the accompanying consolidated financial statements, Liberty’s former
wholly-owned subsidiary, Provide, was sold to FTD on December 31, 2014, in exchange for cash and shares of FTD common stock
representing approximately 35% of the combined company. Subsequent to completion of the transaction, Liberty accounts for FTD
as an equity-method affiliate based on the ownership level and board representation. Given our significant continuing involvement
with FTD, Provide is not presented as a discontinued operation in the consolidated financial statements of Liberty.
As discussed in note 6 of the accompanying consolidated financial statements, Liberty sold Backcountry on June 30,
2015. Backcountry is not presented as a discontinued operation as the sale did not represent a strategic shift that had a major effect
on Liberty’s operations and financial results.
As discussed in note 5 of the accompanying consolidated financial statements, on October 1, 2015, Liberty acquired all of the
outstanding shares of zulily, inc. (“zulily”) (now known as zulily, llc) for consideration of approximately $2.3 billion. zulily is an
online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched
each day.
As discussed in note 6 of the accompanying consolidated financial statements, Liberty completed the spin-off (the
“CommerceHub Spin-Off”) of its former wholly-owned subsidiary CommerceHub on July 22, 2016. CommerceHub is not
presented as a discontinued operation as the CommerceHub Spin-Off did not represent a strategic shift that had a major effect on
Liberty’s operations and financial results.
As discussed in note 6 of the accompanying consolidated financial statements, Liberty completed the split-off (the “Expedia
Holdings Split-Off”) of Liberty Expedia Holdings, Inc. (“Expedia Holdings”) on November 4, 2016. Expedia Holdings is
comprised of, among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned
subsidiary Bodybuilding. The split-off of Liberty’s interest in Expedia represents a strategic shift that has a major effect on Liberty’s
operations, primarily due to prior year one-time gains on transactions recognized as part of the Expedia Holdings Split-Off by
Expedia. Accordingly, Liberty’s interest in Expedia is presented as a discontinued operation. The disposition of Bodybuilding did
not have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The
disposition of Bodybuilding did not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not presented as
a discontinued operation.
The following tables present our assets and liabilities as of December 31, 2016 and 2015 and revenue, expenses and cash
flows for the three years ended December 31, 2016, 2015 and 2014. The financial information in this Exhibit should be read in
conjunction with our consolidated financial statements for the year ended December 31, 2016 included in this Annual Report on
Form 10-K.
1
Notwithstanding the following attribution of assets, liabilities, revenue, expenses and cash flows to the QVC Group and the
Ventures Group, our tracking stock structure does not affect the ownership or the respective legal title to our assets or responsibility
for our liabilities. We and our subsidiaries are each responsible for our respective liabilities. Holders of QVC Group common stock
and Liberty Ventures common stock are holders of our common stock and are subject to risks associated with an investment in our
company and all of our businesses, assets and liabilities. The issuance of QVC Group common stock and Liberty Ventures common
stock does not affect the rights of our creditors or creditors of our subsidiaries.
2
SUMMARY ATTRIBUTED FINANCIAL DATA
QVC Group
Summary balance sheet data:
Current assets
Investments in affiliates, accounted for using the equity method
Intangible assets not subject to amortization, net
Total assets
Long-term debt, including current portion
Deferred tax liabilities
Attributed net assets
December 31, 2016 December 31, 2015
amounts in millions
$
$
$
$
$
$
$
2,642
224
9,325
14,357
6,375
1,116
4,860
2,827
208
9,358
15,141
6,535
1,359
5,195
Summary operations data:
Revenue
Cost of sales
Operating expenses
Selling, general and administrative expenses (1)
Depreciation and amortization
Operating income (loss)
Interest expense
Share of earnings (losses) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net
Other income (expense), net
Income tax benefit (expense)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of taxes
Net earnings (loss)
Less net earnings (loss) attributable to noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders
Years ended December 31,
2016
2015
2014
amounts in millions
$ 10,219
(6,642) (5,847)
9,169
(653)
(1,063)
(850)
1,011
(289)
42
2
42
(297)
511
—
511
38
473
$
(620)
(875)
(657)
1,170
(283)
55
42
(6)
(304)
674
—
674
34
640
10,028
(6,378)
(719)
(1,075)
(650)
1,206
(312)
51
(22)
(43)
(306)
574
(15)
559
39
520
(1)Includes stock-based compensation of $75 million, $60 million and $83 million for the years ended December 31, 2016,
2015 and 2014, respectively.
3
SUMMARY ATTRIBUTED FINANCIAL DATA (Continued)
Ventures Group
Summary balance sheet data:
Cash and cash equivalents
Short term marketable securities
Investments in available-for-sale securities and other cost investments
Investments in affiliates, accounted for using the equity method
Investment in Liberty Broadband measured at fair value
Intangible assets not subject to amortization, net
Long-term debt, including current portion
Deferred tax liabilities
Attributed net assets (liabilities)
Summary operations data:
Revenue
Cost of sales
Operating expenses
Selling, general and administrative expenses (1)
Depreciation and amortization
Operating income (loss)
Interest expense
Share of earnings (losses) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Other, net
Income tax benefit (expense)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of taxes
Net earnings (loss)
Less net earnings (loss) attributable to noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders
December 31, 2016 December 31, 2015
amounts in millions
$
$
$
$
$
$
$
$
$
487
—
1,918
357
3,161
29
1,667
2,520
1,912
2,023
898
1,349
506
—
127
2,172
1,858
1,592
Years ended December 31,
2016
2015 2014
amounts in millions
$
428
(266)
(54)
(127)
(24)
(43)
(74)
(110)
1,173
9
89
(301)
743
20
763
1
762
$
820
(546)
(79)
(203)
(46)
(54)
(77)
(233)
72
110
20
119
(43)
280
237
8
229
471
(306)
(37)
(127)
(19)
(18)
(75)
(70)
(35)
74
19
69
(36)
103
67
50
17
(1)Includes stock-based compensation of $22 million, $67 million and $25 million for the years ended December 31, 2016,
2015 and 2014, respectively.
4
BALANCE SHEET INFORMATION
December 31, 2016
(unaudited)
Attributed (note 1)
QVC
Group
Ventures Consolidated
Group
Liberty
amounts in millions
$
338
1,270
968
66
2,642
4
224
—
1,131
9,325
1,001
30
$ 14,357
$
113
789
684
14
160
1,760
6,361
1,116
161
9,398
4,860
99
$ 14,357
487
38
—
2
527
1,918
357
3,161
—
29
4
2
5,998
(113)
1
22
862
2
774
805
2,520
(3)
4,096
1,912
(10)
5,998
825
1,308
968
68
3,169
1,922
581
3,161
1,131
9,354
1,005
32
20,355
—
790
706
876
162
2,534
7,166
3,636
158
13,494
6,772
89
20,355
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables, net
Inventory, net
Other current assets
Total current assets
Investments in available-for-sale securities and other cost investments (note 2)
Investments in affiliates, accounted for using the equity method (note 3)
Investment in Liberty Broadband measured at fair value (note 3)
Property and equipment, net
Intangible assets not subject to amortization, net
Intangible assets subject to amortization, net
Other assets, at cost, net of accumulated amortization
Total assets
Liabilities and Equity
Current liabilities:
Intergroup payable (receivable)
Accounts payable
Accrued liabilities
Current portion of debt (note 4)
Other current liabilities
Total current liabilities
Long-term debt (note 4)
Deferred income tax liabilities
Other liabilities
Total liabilities
Equity/Attributed net assets (liabilities)
Noncontrolling interests in equity of subsidiaries
Total liabilities and equity
5
BALANCE SHEET INFORMATION
December 31, 2015
(unaudited)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables, net
Inventory, net
Short-term marketable securities
Other current assets
Total current assets
Investments in available-for-sale securities and other cost investments (note 2)
Investments in affiliates, accounted for using the equity method (note 3)
Property and equipment, net
Intangible assets not subject to amortization, net
Intangible assets subject to amortization, net
Other assets, at cost, net of accumulated amortization
Noncurrent assets of discontinued operations
Total assets
Liabilities and Equity
Current liabilities:
Intergroup payable (receivable)
Accounts payable
Accrued liabilities
Current portion of debt (note 4)
Other current liabilities
Total current liabilities
Long-term debt (note 4)
Deferred income tax liabilities
Other liabilities
Noncurrent liabilities of discontinued operations
Total liabilities
Equity/Attributed net assets (liabilities)
Noncontrolling interests in equity of subsidiaries
Total liabilities and equity
6
Attributed (note 1)
QVC
Group
Ventures
Group
Consolidated
Liberty
amounts in millions
$
426
1,379
945
12
65
2,827
4
208
1,104
9,358
1,607
33
—
$ 15,141
$
45
736
745
358
219
2,103
6,177
1,359
209
—
9,848
5,195
98
$ 15,141
2,023
64
55
898
8
3,048
1,349
506
36
127
40
6
927
6,039
(45)
26
39
868
109
997
1,304
1,858
13
285
4,457
1,592
(10)
6,039
2,449
1,443
1,000
910
73
5,875
1,353
714
1,140
9,485
1,647
39
927
21,180
—
762
784
1,226
328
3,100
7,481
3,217
222
285
14,305
6,787
88
21,180
STATEMENT OF OPERATIONS INFORMATION
Year ended December 31, 2016
(unaudited)
Attributed (note 1)
QVC
Group
Ventures
Group
Consolidated
Liberty
amounts in millions
Total revenue, net
Operating costs and expenses:
Cost of retail sales (exclusive of depreciation shown separately below)
Operating
Selling, general and administrative, including stock-based compensation
(note 5)
Depreciation and amortization
Operating income (loss)
Other income (expense):
Interest expense
Share of earnings (losses) of affiliates, net (note 3)
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Other, net
Earnings (loss) from continuing operations before income taxes
Income tax benefit (expense)
Earnings (loss) from continuing operations, net of taxes
Earnings (loss) from discontinued operations, net of taxes
Net earnings (loss)
Less net earnings (loss) attributable to noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation
shareholders
$
10,219
6,642
653
1,063
850
9,208
1,011
(289)
42
2
—
42
(203)
808
(297)
511
—
511
38
428
266
54
127
24
471
(43)
(74)
(110)
1,173
9
89
1,087
1,044
(301)
743
20
763
1
$
473
762
10,647
6,908
707
1,190
874
9,679
968
(363)
(68)
1,175
9
131
884
1,852
(598)
1,254
20
1,274
39
1,235
7
STATEMENT OF OPERATIONS INFORMATION
Year ended December 31, 2015
(unaudited)
Attributed (note 1)
QVC
Group
Ventures
Group
Consolidated
Liberty
amounts in millions
$
9,169
Total revenue, net
Operating costs and expenses:
Cost of retail sales (exclusive of depreciation shown separately below)
Operating
Selling, general and administrative, including stock-based compensation
(note 5)
Depreciation and amortization
Operating income (loss)
Other income (expense):
Interest expense
Share of earnings (losses) of affiliates, net (note 3)
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Other, net
Earnings (loss) from continuing operations before income taxes
Income tax benefit (expense)
Earnings (loss) from continuing operations, net of taxes
Earnings (loss) from discontinued operations, net of taxes
Net earnings (loss)
Less net earnings (loss) attributable to noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders
$
8
820
546
79
203
46
874
(54)
(77)
(233)
72
110
20
(108)
(162)
119
(43)
280
237
8
229
9,989
6,393
699
1,078
703
8,873
1,116
(360)
(178)
114
110
14
(300)
816
(185)
631
280
911
42
869
5,847
620
875
657
7,999
1,170
(283)
55
42
—
(6)
(192)
978
(304)
674
—
674
34
640
STATEMENT OF OPERATIONS INFORMATION
Year ended December 31, 2014
(unaudited)
Attributed (note 1)
QVC
Group
Ventures
Consolidated
Group
Liberty
amounts in millions
Total revenue, net
Operating costs and expenses:
Cost of retail sales (exclusive of depreciation shown separately below)
Operating
Selling, general and administrative, including stock-based compensation
(note 5)
Depreciation and amortization
Operating income (loss)
Other income (expense):
Interest expense
Share of earnings (losses) of affiliates, net (note 3)
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Other, net
Earnings (loss) before income taxes
Income tax benefit (expense)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of taxes
Net earnings (loss)
Less net earnings (loss) attributable to noncontrolling interests
Net earnings (loss) attributable to Liberty Interactive Corporation
shareholders
$
10,028
6,378
719
1,075
650
8,822
1,206
(312)
51
(22)
—
(43)
(326)
880
(306)
574
(15)
559
39
$
520
471
306
37
127
19
489
(18)
(75)
(70)
(35)
74
19
(87)
(105)
69
(36)
103
67
50
17
10,499
6,684
756
1,202
669
9,311
1,188
(387)
(19)
(57)
74
(24)
(413)
775
(237)
538
88
626
89
537
9
STATEMENT OF CASH FLOWS INFORMATION
Year ended December 31, 2016
(unaudited)
Attributed (note 1)
QVC Group
Ventures Group Consolidated Liberty
amounts in millions
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings to net cash provided by operating activities:
$
(Earnings) loss from discontinued operations
Depreciation and amortization
Stock-based compensation
Cash payments for stock-based compensation
Noncash interest expense
Share of (earnings) losses of affiliates, net
Cash receipts from returns on equity investments
Realized and unrealized (gains) losses on financial instruments, net
(Gains) losses on transactions, net
(Gains) losses on extinguishment of debt
Deferred income tax expense (benefit)
Intergroup tax allocation
Intergroup tax payments
Other noncash charges (credits), net
Changes in operating assets and liabilities
Current and other assets
Payables and other liabilities
Net cash provided (used) by operating activities
Cash flows from investing activities:
Cash proceeds from dispositions
Investment in and loans to cost and equity investees
Capital expended for property and equipment
Purchases of short term investments and other marketable securities
Sales of short term investments and other marketable securities
Investment in Liberty Broadband
Other investing activities, net
Net cash provided (used) by investing activities
Cash flows from financing activities:
Borrowings of debt
Repayments of debt
Repurchases of QVC Group common stock
Withholding taxes on net share settlements of stock-based compensation
Distribution from Liberty Expedia Holdings
Other financing activities, net
Net cash provided (used) by financing activities
Effect of foreign currency exchange rates on cash
Net cash provided (used) by discontinued operations:
Cash provided (used) by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
Change in available cash held by discontinued operations
Net cash provided (used) by discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
10
511
—
850
75
—
3
(42)
28
(2)
—
(1)
(199)
360
(301)
(33)
92
(68)
1,273
—
—
(206)
—
12
—
(44)
(238)
1,905
(2,178)
(799)
(15)
—
(16)
(1,103)
(20)
—
—
—
—
—
(88)
426
338
763
(20)
24
22
(92)
9
110
3
(1,173)
(9)
7
672
(360)
301
(82)
44
(49)
170
353
(86)
(27)
(264)
1,162
(2,400)
8
(1,254)
1,522
(2,320)
—
(1)
299
31
(469)
—
17
—
—
—
17
(1,536)
2,023
487
1,274
(20)
874
97
(92)
12
68
31
(1,175)
(9)
6
473
—
—
(115)
136
(117)
1,443
353
(86)
(233)
(264)
1,174
(2,400)
(36)
(1,492)
3,427
(4,498)
(799)
(16)
299
15
(1,572)
(20)
17
—
—
—
17
(1,624)
2,449
825
STATEMENT OF CASH FLOWS INFORMATION
Year ended December 31, 2015
(unaudited)
Attributed (note 1)
QVC Group
Consolidated
Liberty
Ventures Group
amounts in millions
$
674
237
911
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings to net cash provided by operating
activities:
(Earnings) loss from discontinued operations
Depreciation and amortization
Stock-based compensation
Cash payments for stock-based compensation
Noncash interest expense
Share of losses (earnings) of affiliates, net
Cash receipts from return on equity investments
Realized and unrealized gains (losses) on financial instruments, net
(Gains) losses on transactions, net
(Gains) losses on extinguishment of debt
Deferred income tax (benefit) expense
Intergroup tax allocation
Intergroup tax payments
Other noncash charges (credits), net
Changes in operating assets and liabilities
Current and other assets
Payables and other current liabilities
Net cash provided (used) by operating activities
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired
Cash proceeds from dispositions
Investments in and loans to cost and equity investees
Cash receipts from returns of equity investments
Capital expended for property and equipment
Purchases of short term and other marketable securities
Sales of short term investments and other marketable securities
Other investing activities, net
Net cash provided (used) by investing activities
Cash flows from financing activities:
Borrowings of debt
Repayments of debt
Repurchases of QVC Group common stock
Minimum withholding taxes on net share settlements of stock-based
compensation
Purchase of noncontrolling interest
Other financing activities, net
Net cash provided (used) by financing activities
Effect of foreign currency rates on cash
Net cash provided (used) by discontinued operations:
Cash provided (used) by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
Change in available cash held by discontinued operations
Net cash provided (used) by discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end period
$
11
0
657
60
—
6
(55)
22
(42)
—
21
(122)
141
(101)
(14)
(245)
3
1,005
(824)
—
—
200
(218)
(184)
193
(76)
(909)
3,969
(3,244)
(785)
(25)
—
(4)
(89)
(3)
—
—
—
—
—
4
422
426
(280)
46
67
(16)
(1)
233
10
(72)
(110)
—
19
(141)
101
3
8
(47)
57
(20)
271
(120)
50
(40)
(1,186)
1,166
—
121
589
(567)
—
(5)
(33)
(17)
(33)
—
17
(23)
—
—
(6)
139
1,884
2,023
(280)
703
127
(16)
5
178
32
(114)
(110)
21
(103)
—
—
(11)
(237)
(44)
1,062
(844)
271
(120)
250
(258)
(1,370)
1,359
(76)
(788)
4,558
(3,811)
(785)
(30)
(33)
(21)
(122)
(3)
17
(23)
—
—
(6)
143
2,306
2,449
STATEMENT OF CASH FLOWS INFORMATION
Year ended December 31, 2014
(unaudited)
Attributed (note 1)
QVC Group Ventures Group
amounts in millions
Consolidated
Liberty
$
559
67
626
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings to net cash provided by operating
activities:
(Earnings) loss from discontinued operations
Depreciation and amortization
Stock-based compensation
Cash payments for stock-based compensation
Noncash interest expense
Share of losses (earnings) of affiliates, net
Cash receipts from return on equity investments
Realized and unrealized gains (losses) on financial instruments, net
(Gains) losses on transactions, net
(Gains) losses on extinguishment of debt
Deferred income tax (benefit) expense
Intergroup tax allocation
Intergroup tax payments
Other noncash charges (credits), net
Changes in operating assets and liabilities
Current and other assets
Payables and other current liabilities
Net cash provided (used) by operating activities
Cash flows from investing activities:
Cash proceeds from dispositions
Investments in and loans to cost and equity investees
Cash receipts from returns of equity investments
Capital expended for property and equipment
Purchases of short term investments and other marketable securities
Sales of short term investments and other marketable securities
Other investing activities, net
Net cash provided (used) by investing activities
Cash flows from financing activities:
Borrowings of debt
Repayments of debt
Intergroup receipts (payments), net
Repurchases of QVC Group common stock
Minimum withholding taxes on net share settlements of stock-based
compensation
Other financing activities, net
Net cash provided (used) by financing activities
Effect of foreign currency rates on cash
Net cash provided (used) by discontinued operations:
Cash provided (used) by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
Change in available cash held by discontinued operations
Net cash provided (used) by discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end period
$
12
15
650
83
(13)
6
(51)
22
22
—
48
(160)
169
(388)
(3)
(80)
345
1,224
—
(4)
—
(226)
(73)
52
(30)
(281)
4,360
(3,563)
(1,035)
(785)
(25)
(8)
(1,056)
(46)
(20)
—
3
3
(14)
(173)
595
422
(103)
19
25
(2)
—
70
8
35
(74)
—
100
(169)
388
4
(4)
60
424
163
(67)
—
(15)
(791)
539
14
(157)
146
(186)
1,035
—
(1)
(25)
969
—
306
(214)
368
(119)
341
1,577
307
1,884
(88)
669
108
(15)
6
19
30
57
(74)
48
(60)
—
—
1
(84)
405
1,648
163
(71)
—
(241)
(864)
591
(16)
(438)
4,506
(3,749)
—
(785)
(26)
(33)
(87)
(46)
286
(214)
371
(116)
327
1,404
902
2,306
Notes to Attributed Financial Information
(unaudited)
(1)On October 3, 2014, Liberty reattributed from the QVC Group to the Ventures Group its Digital Commerce businesses. In
connection with the reattribution, each holder of Liberty Interactive common stock received 0.14217 of a share of the
corresponding series of Liberty Ventures common stock for each share of QVC Group common stock held as of the record
date, with cash paid in lieu of fractional shares. The distribution date for the dividend was on October 20, 2014, and the
QVC Group common stock began trading ex-dividend on October 15, 2014. The reattribution of the Digital Commerce
businesses is presented on a prospective basis from the date of the reattribution in Liberty’s consolidated financial
statements, with October 1, 2014 used as a proxy for the date of the reattribution. Accordingly, the financial results of the
Digital Commerce businesses are reflected in the QVC Group through the period ending September 30, 2014 and are
reflected in the Ventures group for the period beginning October 1, 2014.
Subsequent to the reattribution, the QVC Group is comprised of our consolidated subsidiaries, QVC and zulily (as of
October 1, 2015), and our interest in HSN, Inc. Accordingly, the accompanying attributed financial information for the
QVC Group includes the foregoing investment, as well as the assets, liabilities, revenue, expenses and cash flows of
QVC and zulily. We have also attributed certain of our debt obligations (and related interest expense) to the QVC Group
based upon a number of factors, including the cash flow available to the QVC Group and its ability to pay debt service
and our assessment of the optimal capitalization for the QVC Group. The specific debt obligations attributed to each of
the QVC Group and the Ventures Group are described in note 4 below. In addition, we have allocated certain corporate
general and administrative expenses between the QVC Group and the Ventures Group as described in note 5 below.
The QVC Group is primarily comprised of our merchandise-focused televised-shopping programs, Internet and mobile
application businesses. Accordingly, we expect that businesses that we may acquire in the future that we believe are
complementary to this strategy will also be attributed to the QVC Group.
Subsequent to the reattribution, the Ventures Group consists of all of our businesses not included in the QVC Group
including our Digital Commerce businesses and interests in Liberty Broadband, FTD and LendingTree and available-for-
sale securities Charter, Interval Leisure Group, Inc. and Time Warner, Inc. Accordingly, the accompanying attributed
financial information for the Ventures Group includes these investments, as well as the assets, liabilities, revenue,
expenses and cash flows of the Digital Commerce businesses. In addition, we have attributed to the Ventures Group all
of our senior exchangeable debentures (and related interest expense). See note 4 below for the debt obligations
attributed to the Ventures Group.
Any businesses that we may acquire in the future that we do not attribute to the QVC Group will be attributed to the
Ventures Group.
13
(2)Investments in available-for-sale securities, including non-strategic securities, and other cost investments are summarized
as follows:
QVC Group
Other cost investments
Total QVC Group
Ventures Group
Charter Communications, Inc.
Interval Leisure Group
Time Warner Inc.
Time Warner Cable Inc.
Other AFS investments
Total Ventures Group
Consolidated Liberty
December 31, 2016 December 31, 2015
amounts in millions
$
$
4
4
1,543
302
1
NA
72
1,918
1,922
4
4
NA
NA
284
994
71
1,349
1,353
(3) The following table presents information regarding certain equity method investments:
QVC Group
HSN, Inc. (1)
Other
Total QVC Group
Ventures Group
FTD (3)
Other (2)
Total Ventures Group
Consolidated Liberty
Share of earnings (losses)
December 31, 2016
Percentage
ownership
Carrying
value
Market
value
Years ended December 31,
2016
2015
2014
dollar amounts in millions
38 % $
various
37 %
various
$
184
40
224
216
141
357
581
687
NA
243
NA
48
(6)
42
(41)
(69)
(110)
(68)
64
(9)
55
60
(9)
51
(83)
(150)
(233)
(178)
N/A
(70)
(70)
(19)
(1)HSN, Inc. (“HSNi”) paid dividends of $28 million, $228 million and $22 million during the years ended December 31,
2016, 2015 and 2014, respectively, which were recorded as reductions to the investment balances. Dividends from HSNi
during the year ended December 31, 2015 included a special dividend of $10 per share from which Liberty received
approximately $200 million in cash.
(2)The Other category for the Ventures Group is comprised of investments in LendingTree, alternative energy investments
and other investments. The alternative energy investments generally operate at a loss but provide favorable tax attributes
recorded through the income tax (expense) benefit line item in the consolidated statement of operations. During the year
ended December 31, 2015, Liberty recorded an impairment of approximately $98 million, based on a discounted cash
flow valuation (Level 3), related to one of its alternative energy investments which has underperformed operationally.
(3)The carrying value of Liberty’s investment in FTD was impaired to the fair value (based on the closing price (Level 1)) as
of December 31, 2015.
14
Investment in Liberty Broadband
As discussed in note 2 of the accompanying consolidated financial statements, in connection with the merger of Charter and
Time Warner Cable, Inc., on May 18, 2016, Liberty invested $2.4 billion in Liberty Broadband Series C nonvoting shares. As
of December 31, 2016, Liberty has a 23% economic ownership interest in Liberty Broadband. Due to overlapping boards of
directors and management, Liberty has been deemed to have significant influence over Liberty Broadband even though
Liberty does not have any voting rights. Liberty has elected to apply the fair value option for its investment in Liberty
Broadband (Level 1) as it is believed that the Company’s investors value this investment based on the trading price of Liberty
Broadband. Liberty recognizes changes in the fair value of its investment in Liberty Broadband in realized and unrealized
gains (losses) on financial instruments, net in the condensed consolidated statements of operations.
(4) Debt attributed to the QVC Group and the Ventures Group is comprised of the following:
QVC Group
Corporate level notes and debentures
8.5% Senior Debentures due 2029
8.25% Senior Debentures due 2030
1% Exchangeable Senior Debentures due 2043
Subsidiary level notes and facilities
QVC 3.125% Senior Secured Notes due 2019
QVC 5.125% Senior Secured Notes due 2022
QVC 4.375% Senior Secured Notes due 2023
QVC 4.85% Senior Secured Notes due 2024
QVC 4.45% Senior Secured Notes due 2025
QVC 5.45% Senior Secured Notes due 2034
QVC 5.95% Senior Secured Notes due 2043
QVC Bank Credit Facilities
Other subsidiary debt
Deferred loan costs
Total QVC Group
Ventures Group
Corporate level debentures
4% Exchangeable Senior Debentures due 2029
3.75% Exchangeable Senior Debentures due 2030
3.5% Exchangeable Senior Debentures due 2031
0.75% Exchangeable Senior Debentures due 2043
1.75% Exchangeable Senior Debentures due 2046
Total Ventures Group
Total consolidated Liberty debt
Less debt classified as current
Total long-term debt
December 31, 2016
Outstanding Carrying
principal
value
amounts in millions
$
$
287
504
1
400
500
750
600
600
400
300
1,896
174
6,412
435
436
337
1
750
1,959
8,371
285
501
—
399
500
750
600
599
399
300
1,896
174
(28)
6,375
276
267
316
3
805
1,667
8,042
(876)
7,166
(5)
Cash compensation expense for our corporate employees will be allocated among the QVC Group and the Ventures
Group based on the estimated percentage of time spent providing services for each group. On a semi-annual basis
estimated time spent will be determined through an interview process and a review of personnel duties unless
transactions significantly change the composition of companies and investments in either respective
15
group which would require a more timely reevaluation of estimated time spent. Other general and administrative
expenses will be charged directly to the groups whenever possible and are otherwise allocated based on estimated
usage or some other reasonably determined methodology. Amounts allocated from the QVC Group to the Ventures
Group was determined to be $38 million, $20 million and $18 million for the years ended December 31, 2016, 2015
and 2014, respectively. We note that stock compensation related to each tracking stock group is determined based
on actual options outstanding for each respective tracking stock group.
While we believe that this allocation method is reasonable and fair to each group, we may elect to change the
allocation methodology or percentages used to allocate general and administrative expenses in the future.
(6)
We have accounted for income taxes for the QVC Group and the Ventures Group in the accompanying attributed
financial information in a manner similar to a stand-alone company basis. To the extent this methodology differs
from our tax sharing policy, differences have been reflected in the attributed net assets of the groups.
QVC Group
Income tax benefit (expense) consists of:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in millions
$ (403)
(20)
(73)
$ (496)
$
185
10
4
199
$ (297)
(325)
(31)
(110)
(466)
143
12
5
160
(306)
(331)
(20)
(75)
(426)
101
14
7
122
(304)
16
Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of
35% as a result of the following:
Computed expected tax benefit (expense)
State and local income taxes, net of federal income taxes
Foreign taxes, net of foreign tax credits
Sale of consolidated subsidiary
Change in valuation allowance affecting tax expense
Impairment of intangible assets not deductible for tax purposes
Dividends received deductions
Alternative energy tax credits and incentives
Impact of change in state rate on deferred taxes
Other, net
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
(283)
(4)
(9)
—
(15)
—
7
—
1
6
(297)
(343)
(12)
(5)
—
2
—
49
—
(4)
9
(304)
(308)
(14)
(2)
14
2
(3)
4
—
1
—
(306)
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and
deferred income tax liabilities are presented below:
Deferred tax assets:
Net operating and capital loss carryforwards
Foreign tax credit carryforwards
Accrued stock compensation
Other accrued liabilities
Other future deductible amounts
Deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Other deferred tax liabilities
Deferred tax liabilities
Net deferred tax liabilities
December 31,
2016
2015
amounts in millions
$
58
134
45
117
131
485
(59)
426
44
71
39
161
150
465
(44)
421
1,537
5
1,542
$ 1,116
1,765
15
1,780
1,359
17
The Company's deferred tax assets and liabilities are reported in the accompanying balance sheet information as
follows:
Ventures Group
Income tax benefit (expense) consists of:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Income tax benefit (expense)
Years ended December 31,
2016
2015
2014
amounts in millions
$
$
$
$
363
8
—
371
(629)
(43)
—
(672)
(301)
143
(6)
1
138
(27)
7
1
(19)
119
170
(1)
—
169
(67)
(33)
—
(100)
69
Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of
35% as a result of the following:
Years ended December 31,
2016
2015
2014
Computed expected tax benefit (expense)
State and local income taxes, net of federal income taxes
Foreign taxes, net of foreign tax credits
Sale of consolidated subsidiary
Impact of change in state rate on deferred taxes
Change in valuation allowance affecting tax expense
Dividends received deductions
Alternative energy tax credits and incentives
Other, net
Income tax benefit (expense)
18
$ (366)
amounts in millions
57
(3)
1
—
(3)
4
2
61
—
119
(22)
—
(1)
—
(1)
2
94
(7)
$ (301)
37
8
—
—
(27)
(4)
2
58
(5)
69
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and
deferred income tax liabilities are presented below:
Deferred tax assets:
Net operating and capital loss carryforwards
Accrued stock compensation
Other future deductible amounts
Deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Investments
Intangible assets
Discount on exchangeable debentures
Deferred gain on debt retirements
Other deferred tax liabilities
Deferred tax liabilities
Net deferred tax liabilities
Intergroup payable (receivable)
December 31,
2016
2015
amounts in millions
$
65
11
14
90
(5)
85
1,069
3
1,404
129
—
2,605
$ 2,520
55
44
18
117
(4)
113
623
23
1,129
193
3
1,971
1,858
The intergroup balances, at December 31, 2016 and 2015, are primarily a result of timing of tax benefits.
(7)
The QVC Group Stock and the Liberty Ventures Stock have voting and conversion rights under our restated
charter. Following is a summary of those rights. Holders of Series A common stock of each group is entitled to one
vote per share, and holders of Series B common stock of each group are entitled to ten votes per share. Holders of
Series C common stock of each group, if issued, are entitled to 1/100th of a vote per share in certain limited cases and
will otherwise not be entitled to vote. In general, holders of Series A and Series B common stock will vote as a single
class. In certain limited circumstances, the board may elect to seek the approval of the holders of only Series A and
Series B QVC Group common stock or the approval of the holders of only Series A and Series B Liberty Ventures
common stock.
At the option of the holder, each share of Series B common stock will be convertible into one share of Series A
common stock of the same group. At the discretion of our board, the common stock related to one group may be
converted into common stock of the same series that is related to the other group.
19
Liberty Interactive Corporation
Reconciliation of Liberty Interactive Corporation ("LINT") Net Assets and
Net Earnings to Liberty Interactive LLC ("LINT LLC") Net Assets and Net Earnings
Exhibit 99.2
December 31, 2016
(unaudited)
amounts in millions
Liberty Interactive Corporation Net Assets
Reconciling items:
zulily net assets
LINT put option obligations
LINT LLC Net Assets
Liberty Interactive Corporation Net Earnings
Reconciling items:
zulily net (earnings) loss
General and administrative expenses
Liberty Interactive LLC Net Earnings
$
$
$
$
6,861
(1,395)
5
5,471
1,274
95
4
1,373