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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
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
For the transition period from to
Commission File Number 001-33982
QURATE RETAIL, INC.
(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
Series A Common Stock, par value $.01 per share
Series B Common Stock, par value $.01 per share
Name of exchange on which registered
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
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 Qurate Retail, Inc. computed by reference to the last sales price of Qurate Retail, Inc. common stock, as of the closing of
trading on June 29, 2018, was approximately $9.0 billion.
The number of outstanding shares of Qurate Retail, Inc.'s common stock as of January 31, 2019 was:
Series A common stock
Series B common stock
405,559,788
29,248,343
Documents Incorporated by Reference
The Registrant's definitive proxy statement for its 2019 Annual Meeting of Stockholders is hereby incorporated by reference into Part III of this Annual Report on Form 10-K.
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QURATE RETAIL, INC.
2018 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-1
II-3
II-5
II-24
II-25
II-25
II-25
II-26
III‑1
III‑1
III‑1
III‑1
III‑1
IV‑1
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Item 1. Business.
General Development of Business
PART I.
Qurate Retail, Inc., formerly known as Liberty Interactive Corporation prior to the Transactions (defined and
described below) and prior thereto known as Liberty Media Corporation, ("Qurate Retail", 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"), which includes HSN, Inc. (“HSN”) following the
transfer of ownership of HSN to QVC (described below), Cornerstone Brands, Inc. (former subsidiary of HSN prior to the
transfer of ownership of HSN to QVC), zulily, llc (“zulily”) and other cost and equity method investments.
On September 23, 2011, Qurate Retail 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 Qurate Retail in exchange for the common stock of LMC.
Following the LMC Split-Off, Qurate Retail and LMC operate as separately publicly traded companies and neither has any
stock ownership, beneficial or otherwise, in the other.
On August 9, 2012, Qurate Retail 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, Qurate Retail 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, Inc. (“Evite”) (collectively, the “Digital Commerce businesses”). Subsequent to the reattribution,
the Interactive Group was referred to as the QVC Group. The QVC Group had attributed to it Qurate Retail’s wholly-owned
subsidiaries QVC, zulily (as of October 1, 2015) and HSN and Cornerstone (as of December 29, 2017), 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 had no consolidated impact
on Qurate Retail. 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. Prior to
the Transactions Qurate Retail had two tracking stocks, QVC Group common stock and Liberty Ventures common stock,
which were intended to track and reflect the economic performance of Qurate Retail’s QVC Group and Ventures Group,
respectively. While the QVC Group and the Ventures Group had separate collections of businesses, assets and liabilities
attributed to them, no group was a separate legal entity and therefore no group could own assets, issue securities or enter into
legally binding agreements. Holders of tracking stock had no direct claim to the group's stock or assets and were not
represented by separate boards of directors. Instead, holders of tracking stock were 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, Qurate Retail 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,
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TripAdvisor Holdings was comprised of Qurate Retail’s former 22% economic and 57% voting interest in TripAdvisor, Inc.
(“TripAdvisor”), as well as BuySeasons, Inc., Qurate Retail’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, Qurate Retail and TripAdvisor Holdings entered into a promissory note that expired in 2017
pursuant to which TripAdvisor Holdings could have requested, if the closing price per share of TripAdvisor common stock
were to fall below certain minimum values, up to $200 million in funds from Qurate Retail. The TripAdvisor Holdings Spin-
Off was recorded at historical cost due to the pro rata nature of the distribution. Following the completion of the TripAdvisor
Holdings Spin-Off, Qurate Retail 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 Qurate Retail have been
prepared to reflect TripAdvisor Holdings as discontinued operations.
On October 1, 2015, Qurate Retail 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 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, Qurate Retail 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. Qurate Retail, along with third party investors, all of whom invested on the
same terms as Qurate Retail, 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. Qurate Retail's investment in Liberty Broadband was funded
using cash on hand and was attributed to the Ventures Group prior to the Transactions.
Qurate Retail 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 Qurate Retail 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 Qurate Retail following the exchange, which proxy and
right of first refusal was assigned to GCI Liberty in connection with the Transactions.
On July 22, 2016, Qurate Retail completed the spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned
subsidiary CommerceHub to holders of its Liberty Ventures common stock. The CommerceHub Spin-Off was accomplished
by the distribution by Qurate Retail of a dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each
outstanding share of Qurate Retail’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 Qurate Retail’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 Qurate Retail that it agreed with the nontaxable characterization of the CommerceHub
Spin-Off. CommerceHub is included in Qurate Retail’s Corporate and other segment through July 22, 2016 and is not
presented as a discontinued operation as the CommerceHub Spin-Off did not have a major effect on Qurate Retail’s
operations and financial results.
On November 4, 2016, Qurate Retail completed the split-off (the “Expedia Holdings Split-Off”) of its former
wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”) to holders of its Liberty Ventures common
stock. At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Qurate
Retail’s former interest in Expedia Group, Inc., formerly known as Expedia, Inc. (“Expedia”) and Qurate Retail’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 Qurate Retail on November 4, 2016. The
Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Qurate Retail’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
Qurate Retail’s Series B Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series B common stock
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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 completed its review of the Expedia Holdings Split-Off and informed Qurate Retail that it agreed with
the nontaxable characterization of the Expedia Holdings Split-Off.
Qurate Retail viewed Expedia and Bodybuilding as separate components and evaluated them separately for
discontinued operations presentation. Based on a quantitative analysis, the split-off of Qurate Retail’s interest in Expedia had
a major effect on Qurate Retail’s operations, primarily due to one-time gains on transactions recognized by Expedia during
2015. Accordingly, Qurate Retail’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 Qurate Retail’s historical results nor is
it expected to have a major effect on Qurate Retail’s future operations. Accordingly, Bodybuilding is not presented as a
discontinued operation.
On December 29, 2017, Qurate Retail acquired the approximate remaining 62% of HSN it did not already own in an
all-stock transaction, making HSN its wholly-owned subsidiary, attributed to the QVC Group. On December 31, 2018,
Qurate Retail transferred our 100% ownership interest in HSN to QVC, Inc. through a transaction among entities under
common control. References throughout this annual report to “QVC” refer to QVC, Inc., which includes HSN, QVC U.S.
and QVC International. Cornerstone remains a subsidiary of Qurate Retail.
the “Reorganization Agreement,” and
On March 9, 2018, Qurate Retail completed the transactions contemplated by the Agreement and Plan of
Reorganization (as amended,
the
“Transactions”) among General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a
Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail (“LI LLC”). Pursuant to the
Reorganization Agreement, GCI amended and restated its articles of incorporation (which resulted in GCI being renamed
GCI Liberty, Inc. (“GCI Liberty”)) and effected a reclassification and auto conversion of its common stock. After market
close on March 8, 2018, Qurate Retail’s board of directors approved the reattribution of certain assets and liabilities from
Qurate Retail’s Ventures Group to its QVC Group, which was effective immediately. The reattributed assets and liabilities
included cash, Qurate Retail’s interest in ILG, Inc., certain green energy investments, LI LLC’s exchangeable debentures, and
certain tax benefits.
transactions contemplated
thereby,
the
Following these events, Qurate Retail acquired GCI Liberty through a reorganization in which certain Qurate Retail
interests, assets and liabilities attributed to the Ventures Group were contributed (the “contribution”) to GCI Liberty in
exchange for a controlling interest in GCI Liberty. Qurate Retail and LI LLC contributed to GCI Liberty their entire equity
interest in Liberty Broadband, Charter, and LendingTree, the Evite operating business and other assets and liabilities
attributed to Qurate Retail’s Venture Group (following the reattribution), in exchange for (a) the issuance to LI LLC of a
number of shares of GCI Liberty Class A Common Stock and a number of shares of GCI Liberty Class B Common Stock
equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures
common stock on March 9, 2018, respectively, (b) cash and (c) the assumption of certain liabilities by GCI Liberty.
Following the contribution, Qurate Retail effected a tax-free separation of its controlling interest in the combined
company (the “GCI Liberty Split-Off”), GCI Liberty, to the holders of Liberty Ventures common stock in full redemption of
all outstanding shares of such stock, in which each outstanding share of Series A Liberty Ventures common stock was
redeemed for one share of GCI Liberty Class A common stock and each outstanding share of Series B Liberty Ventures
common stock was redeemed for one share of GCI Liberty Class B common stock. Simultaneous with the closing of the
Transactions, QVC Group common stock became the only outstanding common stock of Qurate Retail, and thus QVC Group
common stock ceased to function as a tracking stock. On April 9, 2018, Liberty Interactive Corporation was renamed Qurate
Retail, Inc. On May 23, 2018, Qurate Retail amended its charter to eliminate the tracking stock capitalization structure and
reclassify each share of QVC Group common stock into one share of the corresponding series of new common stock of
Qurate Retail. Throughout this annual report we refer to our Series A and Series B common stock as “Qurate Retail common
stock” and “QVC Group common stock.” In July 2018, the IRS completed its review of the GCI Liberty Split-Off and
informed Qurate Retail that it agreed with the nontaxable characterization of the transactions. Qurate Retail received an Issue
Resolution Agreement from the IRS documenting this conclusion.
Qurate Retail viewed LendingTree, Evite and Liberty Broadband as separate components and evaluated them separately
for discontinued operations presentation. Based on a quantitative analysis, the split-off of Qurate Retail’s interest
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in Liberty Broadband had a major effect on Qurate Retail’s operations. Accordingly, Qurate Retail’s interest in Liberty
Broadband is presented as a discontinued operation. The disposition of Evite and LendingTree as part of the GCI Liberty
Split-Off did not have a major effect on Qurate Retail’s historical results nor is it expected to have a major effect on Qurate
Retail’s future operations. Accordingly, Evite and LendingTree are not presented as discontinued operations.
On October 17, 2018, Qurate Retail announced a series of initiatives designed to better position its HSN and QVC U.S.
businesses (“QRG Initiatives”). As part of the QRG Initiatives, QVC will close its fulfillment center in Lancaster,
Pennsylvania and has entered into an agreement to lease a new fulfillment center in Bethlehem, Pennsylvania, commencing
in 2019 (see note 15 to the accompanying consolidated financial statements). Qurate Retail recorded transaction related costs
of $41 million during the year ended December 31, 2018, which primarily related to severance as a result of the QRG
Initiatives.
* * * * *
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; QRG Initiatives; remediation of material weaknesses; new service offerings; revenue growth at QVC; synergies;
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:
·
·
·
·
·
·
·
·
·
·
·
·
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customer demand for our products and services and our ability to anticipate and 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 cost and ability of shipping companies, 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;
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·
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·
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changes in tariffs, trade policy and trade relations following the 2016 United States (“U.S.”) presidential
election and the vote by the United Kingdom (“U.K.”) to exit from the European Union (“Brexit”);
consumer spending levels, including the availability and amount of individual consumer debt;
advertising spending levels;
changes in distribution and viewing of television programming, including the expanded deployment of personal
video recorders, video on demand, streaming 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;
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 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.
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Narrative Description of Business
The following table identifies our more significant subsidiaries and minority investments:
Consolidated Subsidiaries
QVC, Inc.
zulily, llc
Cornerstone Brands, Inc.
QVC
On December 29, 2017, Qurate Retail completed the acquisition of the remaining 62% ownership interest of HSN in
an all-stock transaction. On December 31, 2018, Qurate Retail transferred our 100% ownership interest in HSN to QVC, Inc.
through a transaction among entities under common control. References throughout this annual report to “QVC” refer to
QVC, Inc., which includes HSN, QVC U.S. and QVC International.
QVC curates and sells a wide variety of consumer products via highly engaging, video-rich, interactive shopping
experiences distributed to approximately 404 million worldwide households each day (including the joint venture in China as
discussed below in further detail), through its broadcast networks, as well as its over-the-top platforms (such as Apple TV,
Roku and others), its websites (including QVC.com, HSN.com and others), its mobile applications, and its social pages.
QVC believes it is the global leader in video retailing, e-commerce, mobile commerce and social commerce, with operations
based in the U.S., Germany, Japan, the U.K., Italy and France. Additionally, it has a 49% interest in a retailing joint venture
in China, which operates through a television shopping channel with an associated website. The joint venture is accounted for
by QVC as an equity method investment. QVC’s operating strategy is to create premier shopping destinations for its
customers across multiple broadcast, digital and emerging platforms (featuring fresh, relevant and compelling product
selections and programming), further penetrate its core customer base, generate new customers, and expand internationally to
drive revenue and profitability. For the year ended December 31, 2018, 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 4.4 million new customers and the global e-commerce operation comprised $5.8 billion, or 51%, of
its consolidated net revenue for the year ended December 31, 2018.
In the U.S., QVC distributes its programming live 24 hours per day, 364 days per year. QVC U.S. and HSN present
on average 783 and 633 products, respectively, every week. Internationally, QVC distributes live programming 8 to 24 hours
per day, depending on the market. In 2018, QVC U.S. and HSN have shipped over 90.5 million and 25.3 million packages,
respectively. QVC operates fifteen distribution centers and eight call centers worldwide. In 2018, QVC's work force
consisted of approximately 21,400 employees who handled approximately 171 million customer calls, shipped approximately
235 million units globally and served approximately 15.5 million net 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), 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, flexible payment options, international reach
and scalable infrastructure distinguishes QVC from its competitors.
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QVC U.S.
QVC U.S.'s live programming is distributed nationally, 24 hours per day, 364 days per year, to approximately 96
million television households. QVC U.S distributes its programming to approximately 99% of 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 100 markets; and on Facebook Live, Roku, Apple TV
and Amazon Fire platforms. QVC U.S., including QVC.com, contributed $6.3 billion, or 56%, of consolidated net revenue,
$1,112 million of operating income and $1,417 million of Adjusted OIBDA (defined in Part II, Item 7 of this report) for the
year ended December 31, 2018.
QVC U.S. also has over-the-air broadcasting in designated U.S. markets that can be accessed by any household with
a digital antenna in such markets, regardless of whether it subscribes to a paid television service. This allows QVC U.S. to
reach customers who previously did not have access to the program through other television platforms. QVC U.S. launched
an additional channel, QVC2, which is being distributed through cable and satellite systems and on QVC’s digital platforms.
QVC2 offers viewers 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 a third channel, Beauty iQ, which is being distributed
through cable, satellite, streaming and digital platforms. The channel and supporting platforms are primarily dedicated to a
complete beauty shopping experience for customers.
QVC.com enables consumers to purchase goods offered on its broadcast programming along with a wide assortment
of products that are available only on QVC.com. QVC.com and other digital platforms (including its mobile apps, its social
pages and others) are natural extensions of its business model, allowing customers to engage in its shopping experience
wherever they are, with live or on-demand content customized to the device they are using. In addition, QVC.com allows
shoppers to browse, research, compare and perform targeted searches for products, read customer reviews, control the
order‑entry process and conveniently access their QVC account. For the year ended December 31, 2018, approximately 84%
of new U.S. customers made their first purchase through QVC.com (including through its mobile application). QVC.com
usage as a percentage of total QVC U.S. net revenue has increased from 52.2% in 2016 to 57.9% in 2018.
QVC International
QVC International brings the QVC shopping experience to approximately 145 million households outside the U.S.,
primarily in Germany, Austria, Japan, the U.K., the Republic of Ireland, Italy and France. Similar to the U.S. business its
international business engages customers via multiple platforms, including broadcast networks, websites, mobile applications
and social pages. QVC International product sourcing teams select products tailored to the interests of each local market. For
the year ended December 31, 2018, QVC International generated $2.7 billion, or 24%, of consolidated net revenue, $351
million of operating income and $429 million of Adjusted OIBDA (defined in Part II, Item 7 of this report) and QVC
International’s websites generated $1,051 million, or 38%, of its total international net revenue.
HSN
HSN broadcasts live nationally, 24 hours per day, 364 days per year, reaching approximately 96 million homes in
the U.S. HSN2, which debuted in August 2010, primarily distributes pre-recorded programming. HSN also operates an e-
commerce website, a mobile application, social pages and innovative “Shop By Remote” technology. HSN, including
HSN.com, contributed $2.2 billion or 20% of consolidated net revenue, $49 million of operating income and $213 million of
Adjusted OIBDA (defined in Part II, Item 7 of this report) for the year ended December 31, 2018.
HSN.com allows customers to buy merchandise offered on the HSN broadcasts, along with a wide assortment of
merchandise sold exclusively on HSN.com. HSN.com offers customers a content rich experience, featuring live video on-
demand product and how-to videos and customer reviews. HSN.com sales as a percentage of total HSN net revenue has
increased from 45.1% in 2016 to 48.8% in 2018.
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Merchandise
QVC’s global merchandise mix features: (i) home, (ii) apparel, (iii) beauty, (iv) accessories, (v) electronics and
(vi) jewelry. Many of its brands are exclusive, while others are created by well-known designers. QVC’s global sales mix is
provided in the table below:
Product category
Home
Beauty
Apparel
Accessories
Electronics
Jewelry
Total
2018
Years ended December 31,
2017 (1)
2016 (1)
38%
18%
16%
11%
11%
6%
100%
34%
17%
19%
13%
9%
8%
100%
33%
17%
19%
13%
9%
9%
100%
(1) For the years ended December 31, 2017 and 2016 in the table above, the sales mix does not include HSN.
Unlike traditional brick-and-mortar retailers with inventories across a network of stores, QVC is able to quickly
adapt its offerings in direct response to changes in its customers purchasing patterns. QVC utilizes a test and re-order model
to determine initial customer demand. Through constant monitoring, QVC manages its product offerings to maximize net
revenue and fulfill current demand in large growth segments where it can gain a greater share of its customers' purchases.
QVC’s merchandising team is dedicated to continually researching, pursuing and launching new products and brands. With a
mandate to deliver hard-to-find value, its merchants find and curate collections of high quality goods from manufacturers
with the scale to offer sufficient supply to QVC’s existing and future customers. QVC maintains strong relationships with its
vendors, which are attracted by the showcasing and story-telling elements of its programming, and the volume of sales during
featured presentations.
QVC purchases, or obtains on consignment, products from U.S. and foreign manufacturers and wholesalers, often
on favorable terms based upon the volume of the transactions. QVC has attracted some of the world's most respected
consumer brands as well as celebrities, entrepreneurs and designers to promote these brands. Brand leaders such as Dell,
Dooney & Bourke, Dyson, Judith Ripka and Philosophy reach a broad audience while product representatives share the
stories behind these brands. QVC has agreements with celebrities, entrepreneurs and designers such as Isaac Mizrahi,
Rachael Ray and Martha Stewart enabling it to provide entertaining and engaging programming that develops a lifestyle bond
with its customers. These celebrity personalities and product representatives often provide pre-appearance publicity for their
QVC products on their own social pages and broadcast shows, enhancing demand during their QVC appearances.
QVC presents and promotes across its networks, websites, mobile applications and social platforms, allowing shoppers to
engage with QVC on multiple platforms and devices.
QVC does not depend on any single supplier or designer for a significant portion of its inventory purchases.
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Distribution
QVC distributes its programming 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 and neighboring
countries. QVC also transmits its programming over digital terrestrial broadcast television to viewers throughout Italy,
Germany, and the U.K. and to viewers in certain geographic regions in the U.S. In the U.S., QVC uplinks its digital
programming transmissions using a third-party service, or internal resources. The 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 business units each
obtain uplinking services from third parties and transmit their programming to non-preemptible transponders on international
satellites and terrestrial transmitters. 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 for QVC U.S. and HSN expire between
2019 and 2025. The service agreements for QVC International for the international transponders and terrestrial transmitters
expire between 2019 and 2027.
QVC continually seeks to expand and enhance its broadcast and e-commerce platforms, as well as to further its
international operations and multimedia capabilities. QVC offers native high definition (“HD”) programming in addition to
standard definition programming, which provides additional channel locations and allows QVC to utilize a typically wider
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 and HSNHD reach approximately 85 million and 75
million households, respectively. QVC continues to develop and launch features to further enrich the viewing experience.
Beyond the live programming QVC networks in the U.S., Germany and the U.K. also broadcast on additional
networks that offer viewers access to a broader range of QVC programming options. These networks include QVC2,
HSN2 and Beauty iQ in the U.S., QVC Style and QVC2 in Germany, and QVC Beauty, QVC Extra, and QVC Style in the
U.K.
Affiliation Agreements
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 distributors have termination
dates ranging from 2019 to 2024. 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
6.4% of its QVC U.S. distribution, and approximately 0.4% of its HSN 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 for its U.S. distribution 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. In some cases, pay television
operators receive additional compensation in the form of commission guarantees in exchange for their commitments to
deliver a specified number of subscribers, channel placement incentives and advertising insertion time. QVC International
programming distributors predominantly 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 channel 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
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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.
Demographics of customers
QVC enjoys a very loyal customer base, as demonstrated by the fact that for the twelve months ended December 31,
2018, approximately 86% of its QVC U.S. and HSN 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 $1,064 each during this period. An additional
7% 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).
QVC had slight growth in customer count during 2018, not including the impact for the inclusion of HSN. On a
trailing twelve month basis, total net consolidated customers were approximately 15.5 million, which includes gross
customers of approximately 8.3 million at QVC U.S., 4.5 million at HSN, and approximately 4.7 million at QVC
International. QVC believes its core customer base represents an attractive demographic target market. Based on internal
customer data for QVC U.S. and HSN, approximately 51% of its 12.8 million U.S. customers for the twelve months ended
December 31, 2018 were women between the ages of 35 and 64.
Ordering and fulfillment
QVC strives to be prompt and efficient in order taking and fulfillment. QVC takes a majority of its orders via its
websites and via mobile applications on iPhone, iPad, Apple Watch, Android and other platforms. QVC U.S, QVC
International, and HSN customers placed approximately 39%, 29% and 32%, respectively, of all orders directly through their
mobile devices in 2018.
QVC U.S. has two customer contact centers, located in San Antonio, Texas and Chesapeake, Virginia, that can
direct calls, e-mail contacts and social contacts from one center to the other as volume mandates. HSN has one customer
center, located in St. Petersburg, Florida. Internationally, QVC also has customer contact centers in Chiba, Japan; Knowsley,
U.K.; Brugherio, Italy; and Bochum and Kassel, 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 interactive voice response order systems for telephonic orders, which handle approximately
24.1% of all orders taken on a worldwide basis.
QVC U.S.’s distribution centers are located in Suffolk, Virginia; Lancaster, Pennsylvania; Rocky Mount, North
Carolina; Florence, South Carolina; and Ontario, California. QVC U.S.’s distribution centers and dropship partners have
shipped nearly 698,000 units in a single day during 2018. HSN’s distribution centers are located in Bristol, Virginia; Piney
Flats, Tennessee; Fontana, California; Greeneville, Tennessee; Morristown, Tennessee and Roanoke, Virginia, and they were
able to ship 314,000 units in a single day during 2018. QVC International 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. 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.
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.
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Competition
QVC operates in a rapidly evolving and highly competitive retail business environment. Based on domestic net
revenue for the twelve months ended December 31, 2018, QVC is the leading video retailer in the U.S. and generates
substantially more net revenue than its closest video shopping competitor, EVINE Live Inc. (“EVINE Live”). QVC
International operations face similar competition in their respective markets, such as Shop Channel in Japan, HSE 24 in
Germany, Austria 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, e-commerce
retailers, direct marketing retailers, wholesale clubs, discount retailers, infomercial retailers, and mail-order and catalog
companies.
QVC also competes for access to customers and audience share with other providers of broadcast, 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.
QVC established QVC U.S. and HSN as leaders in video shopping, e-commerce, mobile commerce and social
commerce by curating quality products at outstanding values, providing exceptional customer service, establishing favorable
channel positioning and multiple touchpoints across all digital platforms and generating repeat business from its core
customer base. QVC believes QVC U.S. and HSN also compare favorably in terms of sales to general, non-video based
retailers due to its extensive customer reach and efficient cost structure.
Intellectual Property
QVC regards its trademarks, service marks, patents, 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,
patent 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 trademarks, service marks, patents, copyrights and domain names through U.S. and foreign
governmental authorities and vigorously protects its proprietary rights against infringement.
Domestically, QVC has registered trademarks and service marks including, but not limited to its brand names and
logo, "QVC," "Quality Value Convenience," "Find What You Love, Love What You Find," the "Q Logo," and "Q" and
trademarks for 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 names, logo and propriety products including, but not limited to, "QVC," the "Q
Logo," "Q," "Cook’s Essentials," "Denim & Co.," "Diamonique" and "Northern Nights."
HSN has numerous trademark registrations or pending applications in the United States which help to expand
HSN’s brand awareness. These registrations and applications include the “HSN” brand name and the “HSN logo” as well as
registrations for HSN’s proprietary products and services, including, but not limited to, “HSN Shop By Remote,”
“Technibond,” and “Concierge Collection.”
QVC considers the "QVC" and “HSN” names the most significant trademarks and service marks it holds because of
their 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.
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Seasonality
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.
Cornerstone
Cornerstone consists of a portfolio of aspirational home and apparel brands, prominent in the direct marketing and
retail space, including catalog distribution and related websites. Although there is some overlap in the product offerings, the
home brands are comprised of Frontgate, Ballard Designs and Grandin Road. Garnet Hill focuses primarily on apparel and
accessories and is categorized as an apparel brand. There are also 20 retail and outlet stores located throughout the United
States.
Frontgate features premium, high quality indoor (including bed, bath, kitchen, dining and living room) and outdoor
(including patio, garden and pool) furnishings and accessories. Ballard Designs features European‑inspired bed, bath, dining,
outdoor and office furnishings and accessories, as well as rugs, shelving and architectural accents for the home. Grandin
Road offers an affordable style assortment of products ranging from occasional furniture, accessories, holiday décor and
outdoor furniture.
The Cornerstone brands generally incorporate on-site photography and real-life settings, coupled with related
editorial content describing the merchandise and depicting situations in which it may be used. Branded catalogs are designed
and produced in-house, which enables each individual brand to control the production process and reduces the amount of lead
time required to produce a given catalog.
New editions of full-color catalogs are mailed to customers several times each year, with a total annual circulation in
2018 of approximately 222 million catalogs. The timing and frequency of catalog circulation varies by brand and depends
upon a number of factors, including the timing of the introduction of new products, marketing campaigns and promotions and
inventory levels, among other factors.
Cornerstone also operates websites for each of its featured brands, such as Frontgate.com, BallardDesigns.com,
GarnetHill.com and GrandinRoad.com. These websites serve as additional storefronts for products featured in related print
catalogs, as well as provide customers with additional content and product assortments to support and enhance their shopping
experience. Additional content provided by these websites, which differs across the various websites, includes decorating
tips, measuring information, online design centers, gift registries and travel centers, as well as a feature that allows customers
to browse the related catalog online. In addition, a growing number of customers use mobile devices to shop the Cornerstone
brands.
The Cornerstone brands differentiate themselves by offering customers an assortment of innovative proprietary and
branded apparel and home products. In many cases, Cornerstone seeks to secure exclusive distribution rights for certain
products. Cornerstone employs in-house designers and partners with leading manufacturers and designers to aid in the
development of its unique, exclusive product assortment. The Cornerstone brands use their respective websites and e-mail
marketing to promote special offers, including cross-promotions for other Cornerstone brands. In addition, Cornerstone
partners with third parties to offer promotional events such as sweepstakes and/or enter into other advertising agreements.
Cornerstone believes that these affiliations enhance the awareness of the Cornerstone brands among consumers as well as
strengthen its various brands overall. Cornerstone has also been extending its distributed commerce platform through both its
experiential and more traditional retail and outlet stores, as a marketing tool to increase demand in the overall regions where
the stores reside.
zulily
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 every day. The zulily website was launched in
January 2010 with the goal of revolutionizing the way consumers shop. Through its app, mobile and desktop
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experiences, 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,
accessories and beauty 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 broad vendor base, zulily has built a large scale and uniquely curated shopping destination.
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. Product offerings are typically only available for a limited time and in a
limited quantity, creating urgency to browse, discover and purchase.
Before zulily launches an event, zulily obtains photographs of the merchandise and its editorial team writes about
the merchandise based on the product details provided by the vendor. zulily strives to offer the lowest price points for its
customers, with the average item offered for a 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 customers 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 via paid and unpaid
sources, and then drives engagement and repeat purchases from those customers over a long period of time
through diversified marketing channels.
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. Investment in machine learning and data science helps place the right product in front
of the right customer at the right time. 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 driven 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. In addition, zulily also offers third party fulfillment services to its vendors.
This program allows vendors to store their inventory in zulily’s warehouses and fulfill orders for zulily’s events or other retail
channels and has helped reduce shipping times to zulily customers.
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, price,
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.
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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, including: zulily, the zulily design mark and designs associated with its mobile applications and branded social
channels.
zulily’s results are impacted by a pattern of elevated sales volume during the back-to-school shopping season in the
third quarter and holiday shopping season in the fourth quarter. The fourth quarter accounted for approximately 30.3% and
32.2% of zulily’s revenue for the years ended December 31, 2018 and 2017, respectively.
Regulatory Matters
Programming and Interactive Television Services
Although QVC, a wholly owned subsidiary, markets and sells consumer products through a variety of outlets, it
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 it can affect
QVC. 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.
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
system (“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 Latin America Ltd.’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.
Our subsidiary QVC is subjected to program access rules as a result of our attributable interest in Charter under FCC rules.
We are also subject to the program access rules as a condition of FCC approval of Qurate Retail’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 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. Our subsidiary
QVC is subjected to program carriage rules as a result of our attributable interest in Charter under FCC rules.
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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 subsequently issued further notices of proposed rulemaking 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
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 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. The video programmer registration and compliance certification requirements of the amended rules have not
yet become effective. As a result of these captioning requirements, QVC 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
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to country. For example, the European Union’s (“EU”) General Data Protection Regulation (“GDPR”) 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, took effect in May 2018. Further, in 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 EU nations for use in the U.S. A new data transfer framework, the EU-U.S. Privacy Shield, became fully operational
on August 1, 2016, but is the subject of litigation. Finally, the European Commission proposed new regulations in 2017
regarding privacy and electronic communications, which would remain pending, 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. California also has enacted the California Consumer Privacy Act of 2018
(“CCPA”), which, among other things, allows California consumers to request that certain companies disclose the types of
personal information collected by such companies. The CCPA takes effect on January 1, 2020. 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 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 reclassified 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. Among other things, the regulations prohibited 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. On December 14, 2017, the FCC adopted a Declaratory Ruling, Report
and Order and Order (“2017 Order”) that, among other things, eliminates these prohibitions. The 2017 Order does require
ISPs to disclose information to consumers regarding practices such as throttling, paid prioritization and affiliated
prioritization. Various parties have challenged the 2017 Order in court. Legislative proposals regarding the open Internet
rules are pending in Congress.
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.
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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 and Walmart, have a significantly greater web-presence than our e-commerce subsidiaries and equity affiliates. 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 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, 2018, our corporate function is supported by a services agreement with LMC which has
approximately 86 corporate employees who are also considered employees of Qurate Retail. Additionally, our consolidated
subsidiaries had an aggregate of approximately 27,140 full and part-time employees. We believe that our employee relations
are good.
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.qurateretail.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, Qurate Retail, Inc., 12300 Liberty Boulevard, Englewood, Colorado 80112, Tel. No. (866)
876-0461.
The information contained on our website and the websites of our subsidiaries and affiliated businesses mentioned
throughout this report are 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.
Our historical financial information may not necessarily reflect our results had our former QVC Group been a
separate company. During the first quarter of 2018, we completed the Transactions. As a result, our company no longer
utilizes a tracking stock structure, which had been intended to track and reflect the economic performance of the businesses,
assets and liabilities attributed to the QVC Group and Ventures Group. We previously adopted this structure in 2012 to,
among other reasons, 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 our
company’s common stock, investors should recognize that our historical financial information has been extracted from our
consolidated financial statements prior to the Transactions and may not necessarily reflect what our company’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, Charter, 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., Mediaset, Hot Bird and Sky Italia in Italy, and Orange, Free, Canalsat,
Bouygues Telecom and Fransat in France. QVC’s affiliation agreements with its distributors are scheduled to expire between
2019 and 2024. 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 6.4% of its QVC U.S. distribution, and approximately 0.4% of its HSN
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 and no assurance can be given that they will be successful in negotiating
renewals with these distributors or that the financial and other terms of these renewals will be acceptable. Although QVC
considers its current levels of distribution without written agreement to be ordinary course, no assurance can be given that
QVC will be successful in negotiating renewals with all these operators or that the financial and other terms of renewal will
be on acceptable terms. The failure to successfully renew or negotiate new affiliation agreements covering a material portion
of television households on acceptable terms 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. 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, manufacturers 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 of 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 result in lost sales or 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.
Our programming and online commerce businesses rely on distribution facilities to operate their business, and any
damage to one of these facilities, or any disruptions caused by incorporating new facilities into their operations, could
have a material adverse impact on their business. Our programming and online commerce businesses operate a limited
number of distribution facilities worldwide. Their ability to meet the needs of their customers depends on the proper
operation of these distribution facilities. If any of these distribution facilities were to shut down or otherwise become
inoperable or inaccessible for any reason, these businesses could suffer a substantial loss of inventory and disruptions of
deliveries to their customers. In addition, they could incur significantly higher costs and longer lead times associated with the
distribution of their products during the time it takes to reopen or replace the damaged facility. Any of the foregoing factors
could result in decreased sales and have a material adverse effect on our business, financial condition and operating results.
In addition, these businesses have been implementing new warehouse management systems to further support their efforts to
operate with increased efficiency and flexibility. There are risks inherent in operating in new distribution environments and
implementing new warehouse management systems, including operational difficulties that may arise with such transitions.
Our businesses may experience shipping delays should there be any disruptions in their new warehouse management systems
or warehouses themselves.
In October 2018, we announced that our HSN and QVC U.S. business units would be opening a new distribution
facility in Bethlehem, Pennsylvania in 2019 and that we anticipated closing distribution facilities in Lancaster, Pennsylvania,
Roanoke, Virginia, and Greeneville, Tennessee in 2020. Difficulties experienced in opening the Bethlehem distribution
center, including delays in the installation of package handling equipment or warehouse management systems, or if the
package handling equipment or warehouse management systems do not perform as anticipated, could cause delays in the
Bethlehem distribution center operating at full capacity or at all. Delays in opening the Bethlehem distribution center could
cause delays in closing other facilities, including the Lancaster, Pennsylvania facility. Delays in closing these facilities or
disruptions caused by transitioning order fulfillment operations from closing facilities to other facilities may increase
operating expenses for these businesses, cause disruptions to their order fulfillment processes and cause delays in delivering
product to customers which would result in lost sales, strain relationships with customers, and cause harm to our businesses’
reputations, any of which could have a material adverse impact on our business, financial condition and operating results.
The unanticipated loss of certain larger vendors or the consolidation of our programming and online commerce
businesses’ vendors could negatively impact their sales and profitability on a short term basis. It is possible that one or
more of the larger vendors for our programming and online commerce businesses could experience financial difficulties,
including bankruptcy, or otherwise could elect to cease doing business with our businesses. While these businesses have
periodically experienced the loss of a major vendor, if multiple major vendors ceased doing business with these businesses,
or did not perform consistently with past practice, this could have a material adverse impact on our business, financial
condition and operating results. Further, there has been a trend among these vendors towards consolidation in recent years
that may continue. This consolidation could exacerbate the foregoing risks and increase these vendors’ bargaining power and
their ability to demand terms that are less favorable to our businesses.
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Our businesses are subject to risks of adverse government regulation. Our programming business QVC markets and
provides a broad range of merchandise through television shopping programs and proprietary websites. Similarly, our online
commerce business zulily markets and provides a broad range of merchandise and/or services through its proprietary
websites. As a result, our 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 chains, 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 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. In October 1996, HSN became subject to a consent order issued by the FTC
which terminates on the later of April 15, 2019, or 20 years from the most recent date that the U.S. or the FTC files a
complaint in federal court alleging any violation thereunder. Pursuant to this consent order, HSN (including its subsidiaries
and affiliates) is prohibited from making claims for specified categories of products, including claims that a given product
can cure, treat or prevent any disease or have an effect on the structure or function of the human body, unless it has
competent and reliable scientific evidence to substantiate such claims. The FTC periodically investigates HSN’s business and
operations on an ongoing basis for purposes of determining its compliance with the consent order. 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
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material changes in the law and increased regulatory requirements must be anticipated, and there can be no assurance that our
businesses and or any of our assets 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.
Prolonged economic uncertainty in various regions of the world in which our subsidiaries and business 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 may 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
deteriorate, customers of our subsidiaries and business affiliates may respond by suspending, delaying, or reducing their
discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect our revenue.
Accordingly, our ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant
economic environments decline. Such weak economic conditions may also inhibit the expansion of our subsidiaries and
business 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 GCI Liberty Split-Off. We received an opinion of our tax
counsel in connection with the contribution and split-off forming a part of the Transactions (the “GCI Liberty Split-Off”) to
the effect that, for U.S. federal income tax purposes, the GCI Liberty Split-Off would qualify as a tax-free transaction to our
company and to the former holders of our Liberty Ventures common stock under Section 355, Section 368(a)(1)(D) and
related provisions of the Internal Revenue Code of 1986, as amended (the “Code”). In July 2018, the Internal Revenue
Service (“IRS”) completed its review of the GCI Liberty Split-Off and informed our Company that it agreed with the
nontaxable characterization of the Transactions. We received an Issue Resolution Agreement from the IRS documenting this
conclusion.
Even if the GCI Liberty Split-Off otherwise qualifies under Section 355, Section 368(a)(1)(D), and related
provisions of the Code, the GCI Liberty Split-Off would result in a significant U.S. federal income tax liability to us (but not
to the former holders of Liberty Ventures common stock) under Section 355(e) of the Code if one or more persons acquire,
directly or indirectly, a 50% or greater interest (measured by either vote or value) in the stock of our company or in the stock
of GCI Liberty (excluding, for this purpose, the acquisition of GCI Liberty’s common stock by us and holders of Liberty
Ventures common stock pursuant to the Transactions) as part of a plan or series of related transactions that includes the GCI
Liberty Split-Off. Any acquisition of the stock of our company or GCI Liberty (or any successor corporation) within two
years before or after the GCI Liberty Split-Off would generally be presumed to be part of a plan that includes the GCI
Liberty Split-Off, although the parties may be able to rebut that presumption under certain circumstances. The process for
determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature and subject to a
comprehensive analysis of the facts and circumstances of the particular case. Notwithstanding the opinion of tax counsel
described above, we or GCI Liberty might inadvertently cause or permit a prohibited change in ownership of our company or
GCI Liberty, thereby triggering tax liability to us.
Prior to the GCI Liberty Split-Off, we entered into a tax sharing agreement with GCI Liberty. Under this agreement,
our company is generally responsible for any taxes and losses resulting from the failure of the GCI Liberty Split-Off to
qualify as a tax-free transaction; however, GCI Liberty is required to indemnify us for any taxes and losses which (i) result
primarily from, individually or in the aggregate, the breach of certain covenants made by GCI Liberty (applicable to actions
or failures to act by GCI Liberty and its subsidiaries following the completion of the GCI Liberty Split-Off), or (ii) result
from the application of Section 355(e) of the Code to the GCI Liberty Split-Off as a result of the treatment of the GCI Liberty
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% or greater interest (measured by either vote or value) in the stock of GCI Liberty (or any successor
corporation). As the taxpaying entity, however, we are subject to the risk of non-payment by GCI Liberty of its
indemnification obligations under the tax sharing agreement.
To preserve the tax-free treatment of the GCI Liberty 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 the GCI Liberty Split-Off. In addition, our potential tax liabilities related to the GCI
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Liberty Split-Off might discourage, delay or prevent a change of control transaction for some period of time following the
GCI Liberty Split-Off.
Rapid technological advances could render the products and services offered by our subsidiaries and our business
affiliates obsolete or non-competitive. Our subsidiaries and business affiliates 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, thereby adversely impacting our revenue and operating
income.
Our subsidiaries and business affiliates conduct their businesses under highly competitive conditions. Although
QVC is one of the nation’s largest home shopping networks, it 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, and Internet retailers. In addition, QVC competes with 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 and Cornerstone compete with e-commerce businesses such as Amazon.com, Inc. and Alibaba
Group, the e-commerce platforms of traditional retailers such as Target Corporation and Wal-Mart Stores, Inc., and online
marketplaces such as eBay Inc. Cornerstone also competes with other mail-order and catalog companies. 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 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 our businesses 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. For
example, QVC and Cornerstone have spent, and expect to continue to spend, increasing amounts of money on, and devote
greater resources to, certain of these initiatives, particularly in connection with the growth and maintenance of their brands
generally, as well as in the continuing efforts of their businesses to increasingly engage customers through digital channels.
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), paper and
printing costs for catalogs (in the case of Cornerstone) and costs associated with online marketing, including search engine
marketing (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) (“SEM”) 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
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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 to maintain suitable placement for its programming could adversely affect its
ability to attract and retain television viewers and could result in a decrease in revenue. QVC is dependent upon the
continued ability of its programming to compete for viewers. Effectively competing for television viewers is dependent, in
substantial part, on its ability to negotiate and maintain placement of its 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 QVC to negotiate and maintain suitable channel
placement with its distributors. Increased channel capacity could adversely affect the ability to attract television viewers to
QVC’s programming to the extent it results in a less favorable channel position for its programming, such as placement
adjacent to programming that does not complement its programming, a position next to its 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
programming is carried exclusively by a distributor on a digital programming tier, QVC 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 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 QVC will depend, in part, on its ability to anticipate and adapt to
technological changes and to offer elements of its programming via new technologies in a cost-effective manner that meets
customer demands and evolving industry standards.
Any continued or permanent inability of QVC to transmit its programming via satellite would result in lost revenue
and could result in lost customers. The success of our subsidiary QVC is dependent upon its continued ability to transmit its
programming to television providers from its satellite uplink facilities, which transmissions are subject to FCC compliance in
the U.S. and foreign regulatory requirements in QVC’s international operations. In most cases, QVC 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.
System interruption and the lack of integration and redundancy in the systems and infrastructures of our subsidiary
QVC and our other online commerce and catalog 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), 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 Cornerstone also rely on affiliate and third-party computer systems, broadband, transmission and other
communications systems and service providers in connection with the transmission of its respective signals, as well as to
facilitate, process and fulfill transactions. Any interruptions, outages or delays in its signal transmissions, systems and
infrastructures, or any deterioration in the performance of these
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transmissions, systems and infrastructures, could impair its 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 2015 invalidated the U.S.-E.U. Safe Harbor Framework, which
facilitated personal data transfers to the U.S. in compliance with applicable European data protection laws. The E.U.-U.S.
Privacy Shield, which replaced the U.S.-E.U. Safe Harbor Framework, became fully operational on August 1, 2016, but is the
subject of litigation. In addition, Standard Contractual Clauses - another key mechanism to allow data transfers between the
U.S. and the E.U. - are also subject to litigation over whether Standard Contractual Clauses can be used for transferring
personal data from the E.U. to the U.S. Further, the General Data Protection Regulation, which became effective on May 25,
2018, gives consumers in the E.U. additional rights and imposes additional restrictions and penalties on companies for illegal
collection and misuse of personal information. California has enacted the California Consumer Privacy Act of 2018
(“CCPA”), which, among other things, allows California consumers to request that certain companies disclose the types of
personal information collected by such companies. The CCPA will become effective on January 1, 2020. Finally, the
European Commission proposed new regulations in 2017, which proposals remain pending, regarding privacy and electronic
communications, including additional regulation of the Internet tracking tools known as “cookies.” QVC’s, Cornerstone’s
and zulily’s failure, and/or the failure by the various third party vendors and service providers with which QVC, Cornerstone
and zulily do 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, Cornerstone’s and zulily’s reputations
and the reputation of their third party vendors and service providers, discourage potential users from trying their 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 QVC’s, Cornerstone’s and zulily’s business, financial condition and results of operations 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 businesses are subject to security risks, including security breaches and identity theft. In order to succeed, our
businesses must be able to provide for secure transmission of confidential information over public networks and protect their
confidential information on their systems. Unauthorized parties may attempt to gain access to our businesses’ systems by,
among other things, hacking into our businesses’ systems or those of our businesses’ partners or vendors, or through fraud or
other means of deceiving our businesses’ employees, partners or vendors. The techniques used to gain such access to our
businesses’ information technology systems, our businesses' data or customers' data, disable or degrade service, or sabotage
systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until launched against a
target. Our businesses have implemented systems and processes intended to secure their information technology systems and
prevent unauthorized access to or loss of sensitive data, but as with all companies, these security measures may not be
sufficient for all eventualities and there is no guarantee that they will be adequate to safeguard against all data security
breaches, system compromises or misuses of data. Any penetration of network security or other misappropriation
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or misuse of personal information could cause interruptions in the operations of our businesses 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. If our businesses’ are unable to maintain the security of their retail commerce
websites and mobile commerce applications, they could suffer loss of sales, reductions in traffic, and deterioration of their
competitive position and incur liability for any damage to customers whose personal information is unlawfully obtained and
used. Our 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.
Certain of our businesses face significant inventory risk. Certain of our businesses are exposed to significant
inventory risks that may adversely affect their operating results as a result of seasonality, new product launches, rapid
changes in product cycles and pricing, defective merchandise, changes in consumer demand, consumer spending patterns,
changes in consumer tastes with respect to their products and other factors. These businesses endeavor to accurately predict
these trends and avoid overstocking or understocking products they sell. Demand for products, however, can change
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significantly between the time inventory or components are ordered and the date of sale. In addition, when these businesses
begin selling a new product, it may be difficult to establish vendor relationships, determine appropriate product or component
selection, and accurately forecast demand. The acquisition of certain types of inventory or components may require
significant lead-time and prepayment and they may not be returnable. These businesses carry a broad selection and
significant inventory levels of certain products, and they may be unable to sell products in sufficient quantities or during the
relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect their operating results.
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 Cornerstone experiences higher
sales volume during the second and fourth quarters of the year. 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 subsidiaries QVC U.S., QVC International, HSN and zulily to effectively manage the Easy-Pay,
Flexpay, Smart-Pay and revolving credit card programs as applicable, could result in less income. QVC U.S. and QVC
International 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, allows customers to pay for certain merchandise in two or more monthly installments. Easy-Pay is
frequently offered by QVC U.S. and QVC International on the products it sells. When Easy-Pay is offered by QVC U.S. and
QVC International 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. QVC U.S. and QVC International cannot predict whether customers will
pay all of their Easy-Pay installments. Accordingly, a provision for customer bad debts is provided as a percentage of
accounts receivable based on historical experience and is included within selling, general and administrative expense (see
note 2 to our accompanying consolidated financial statements). To the extent that Easy-Pay losses exceed historical levels,
QVC’s results of operations may be negatively impacted.
HSN offers Flexpay, a program which customers may pay for certain merchandise in two to six interest-free, monthly
credit or debit card installments. Flexpay is frequently offered by HSN on the products it sells. HSN maintains allowances for
estimated losses resulting from the inability of customers to make required payments. Actual losses due to the inability of
customers to make required payments may increase in a given period or exceed related estimates. As Flexpay usage
continues to grow, HSN may experience these losses at greater rates, which will require it to maintain greater allowances for
doubtful accounts of estimated losses than it has historically. To the extent that Flexpay losses exceed historical levels, HSN’s
results of operations may be negatively impacted.
zulily offers Smart-pay, a program which customers may pay for certain merchandise in two or three payments. zulily
maintains allowances for estimated losses resulting from the inability of customers to make required payments. Actual losses
due to the inability of customers to make required payments may increase in a given period or exceed related estimates. zulily
may experience these losses at greater rates, which will require it to maintain greater allowances for doubtful accounts of
estimated losses than it has historically.
In addition, QVC U.S., HSN and zulily have an agreement with a large consumer financial institution (the “Bank”)
pursuant to which the Bank provides revolving credit directly to U.S. customers for the sole purpose of purchasing
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merchandise from QVC U.S., HSN and zulily with a branded credit card (For QVC U.S. the “Q Card”, for HSN the “HSN
Credit Card” and for zulily the “zulily Credit Card”). QVC U.S., HSN and zulily receive a portion of the net economics of
the respective credit card programs. We cannot predict the extent to which QVC U.S., HSN and zulily’s customers will use
the Q Card, the HSN Credit Card, or the zulily Credit 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. Our home television and online 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 these subsidiaries
and business affiliates 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.
Certain of our subsidiaries and business affiliates have operations outside of the U.S. that are subject to
numerous operational and financial risks. Certain of our subsidiaries and business affiliates have operations in countries
other than the U.S. that are subject to the following risks inherent in international operations:
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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, trade policies and trade relations;
increases in taxes and governmental royalties and fees;
the ability to obtain and maintain required licenses or certifications, such as for web services and electronic
devices, 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 as a result of distance, language and cultural
differences; 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.
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Significant developments stemming from the 2016 U.S. presidential election or the Brexit vote could have a material
adverse effect on our businesses. After the presidential inauguration on January 20, 2017, President Donald J. Trump and his
administration took office in the U.S. As a presidential candidate, President Trump expressed apprehension towards trade
agreements, such as the Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or withdraw from certain
trade agreements. He has also advocated for and imposed tariffs on certain goods imported into the U.S., particularly from
China. On January 23, 2017, the President of the U.S. signed a presidential memorandum to withdraw the U.S. from the
Trans-Pacific Partnership. On November 30, 2018, the U.S., Mexico and Canada signed the United States-Mexico-Canada
Agreement, a successor to the North American Free Trade Agreement, which will impact imports and exports among those
countries. These and other proposed actions, if implemented, could adversely affect our businesses that sell imported
products.
Additionally, the Brexit process and negotiations have created political and economic uncertainty, particularly in the
U.K. and the E.U., and this uncertainty may last for years. Failing the implementation of an agreed extension, the U.K. is
scheduled to withdraw from the E.U. on March 29, 2019. The U.K. government’s draft agreement on the withdrawal of the
U.K. from the E.U. was defeated in the House of Commons on January 15, 2019. As a result, the final terms of the U.K.’s
exit from the E.U. are, and will remain for the immediate future, unclear. The U.K. may leave the E.U. without any
agreement as to the terms of its withdrawal or the future economic relationship between the U.K. and the E.U. It is also
possible that the U.K. will withdraw its notification to leave the E.U. or that there will be a second referendum on Brexit. The
potential impacts, if any, of the considerable uncertainty relating to Brexit or the resulting terms of Brexit on the free
movement of goods, services, people and capital between the U.K. and the E.U., customer behavior, economic conditions,
interest rates, currency exchange rates, availability of capital or other matters are unclear. QVC’s business could be affected
with respect to these matters during this period of uncertainty, and perhaps longer depending on the resulting terms. In
particular, 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. which could result in
shipping delays and the shortage of products sold by our business. Additionally, the U.K. economy and consumer demand in
the U.K., including for the Company’s products, could be negatively impacted. Further, various geopolitical forces related to
Brexit may impact the global economy, the European economy and the Company’s business, including, for example, due to
other E.U. member states where we have operations proposing referendums to, or electing to, exit the E.U. These possible
negative impacts, and others resulting from the U.K.’s withdrawal from the E.U., may adversely affect QVC’s operating
results.
Our businesses 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 with relevant and current content that rank well in
“organic,” or unpaid, search engine results) and SEM 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.
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Our businesses may experience difficulty in achieving the successful development, implementation and customer
acceptance of 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.
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, 2018, QVC had
total debt of approximately $5,148 million, consisting of $3,775 million in senior secured notes, $1,185 million under its
senior secured credit facility and $188 million of capital and build to suit lease obligations. QVC also had $2.3 billion
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:
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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;
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 their indebtedness, our financial performance could be adversely
affected as well.
QVC may need to refinance its indebtedness. Although QVC expects to refinance or otherwise repay its
indebtedness, it may not be able to refinance its indebtedness on terms acceptable to it or at all. The financial terms or
covenants of any new credit facility, notes or other indebtedness may not be as favorable as those under its senior secured
credit facility and its existing notes. QVC’s ability to complete a refinancing of its senior secured credit facility and its
existing notes prior to their respective maturities will depend on its financial and operating performance, as well as a number
of conditions beyond its control. For example, if disruptions in the financial markets were to exist at the time that it intended
to refinance this indebtedness, it might be restricted in its ability to access the financial markets. If QVC is unable to
refinance its indebtedness, its alternatives would include negotiating an extension of the maturities of its senior secured credit
facility and its existing notes with the lenders and seeking or raising new equity capital. If QVC were
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unsuccessful, the lenders under its senior secured credit facility and the holders of its existing notes could demand repayment
of the indebtedness owed to them on the relevant maturity date, which could adversely affect its and our financial condition.
Covenants in QVC’s debt agreements restrict its business in many ways. QVC’s senior secured credit facility and
the indentures governing its notes contain various covenants that limit its ability and/or its restricted subsidiaries' ability to,
among other things:
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incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;
pay dividends or make distributions or redeem or repurchase capital stock;
prepay, redeem or repurchase debt;
· make loans, investments and capital expenditures;
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enter into agreements that restrict distributions from its subsidiaries;
sell assets and capital stock of its subsidiaries;
enter into sale and leaseback transactions;
enter into certain transactions with affiliates;
consolidate or merge with or into, or sell substantially all of its assets to, another person; and
designate its subsidiaries as unrestricted subsidiaries.
In addition, QVC’s senior secured credit facility contains restrictive covenants and requires it to maintain a specified
leverage ratio. QVC’s ability to meet this leverage ratio test can be affected by events beyond its control, and it may be
unable to meet those tests. A breach of any of these covenants could result in a default under QVC’s senior secured credit
facility, which in turn could result in a default under the indentures governing its notes. Upon the occurrence of an event of
default under QVC’s senior secured credit facility, the lenders could elect to declare all amounts outstanding under its senior
secured credit facility to be immediately due and payable and terminate all commitments to extend further credit. If QVC
were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that
indebtedness. QVC’s senior secured credit facility, its notes and certain future indebtedness are secured by a first priority
perfected lien in all shares of its capital stock. If the lenders and counterparties under QVC’s senior secured credit facility, its
notes and certain future indebtedness accelerate the repayment of obligations, it may not have sufficient assets to repay such
obligations. QVC’s borrowings under its senior secured credit facility are, and are expected to continue to be, at variable rates
of interest and expose it to interest rate risk. If interest rates increase, QVC’s debt service obligations on the variable rate
indebtedness will also increase even though the amount borrowed remains the same, and QVC’s net income would decrease.
We may fail to realize the potential benefits of the acquisition of HSN 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 U.S. and HSN. However, the efforts to realize
these benefits and synergies will be a complex process and may disrupt each company’s existing operations if not
implemented in a timely and efficient manner. If the respective managements of Qurate Retail, QVC U.S. and HSN 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 HSN. 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 U.S.’s and HSN’s core
businesses. QVC U.S., HSN and zulily engage in transactions relating to personnel, sales, sourcing of
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merchandise, marketing initiatives, fulfillment integration, business advisory services, and software development with the
expectation that these transactions will result in various synergies including, among other things, enhanced revenues,
procurement cost savings and operating efficiencies, innovation and sharing of best practices. However, they may not realize
these anticipated benefits. We currently anticipate that these efforts will continue for the foreseeable future.
Our operating expenses are expected to increase over the near term due to the increased headcount, expanded
operations and changes related to the assimilation of HSN. In addition, we have incurred expenses related to the acquisition
of HSN, 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 may be adversely affected. Failure to timely implement, or
problems with implementing, the post-acquisition strategy for HSN also may adversely affect the trading price of our
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 our
financial condition and operating results.
We do not have the right to manage our business affiliates, which means we are not able to cause those business
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). 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 a business affiliate from paying dividends or making distributions to its 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.
We have overlapping directors and officers with Liberty Media Corporation (“LMC”), Liberty TripAdvisor Holdings,
Inc. (“TripAdvisor Holdings”), Liberty Broadband, Liberty Expedia Holdings, Inc. (“Expedia Holdings”), and GCI
Liberty, which may lead to conflicting interests. As a result of certain transactions that occurred between 2011 and 2018 that
resulted in the separate corporate existence of our company, LMC, TripAdvisor Holdings, Liberty Broadband, Expedia
Holdings and GCI Liberty, most of the executive officers of Qurate Retail also serve as executive officers of LMC,
TripAdvisor Holdings, Liberty Broadband, Expedia Holdings and GCI Liberty and there are overlapping directors. Other
than GCI Liberty’s current 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, Expedia Holdings or GCI Liberty 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,
Expedia Holdings or GCI Liberty 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, Expedia
Holdings and/or GCI Liberty stock and equity awards. These ownership interests
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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, Expedia Holdings
and/or GCI Liberty. 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, Expedia Holdings and GCI Liberty has renounced its rights to certain business opportunities and their respective
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, Expedia Holdings and GCI Liberty) 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, Expedia Holdings or GCI Liberty 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 GCI Liberty or any of their respective subsidiaries or affiliates as would be the case where there is no
overlapping officer or director.
A substantial portion of our consolidated debt 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, 2018, our wholly-owned subsidiary LI LLC had $2,308 million principal amount of publicly-traded debt
outstanding. LI LLC is a holding company for all of our subsidiaries and investments. Our ability to meet the financial
obligations of LI 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 to pay dividends or to make
other payments or advances to us or LI 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 LI 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, 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 LI LLC, which
exposes us to liquidity risk. LI LLC currently has outstanding multiple tranches of exchangeable debentures in the aggregate
principal amount of $1,517 million as of December 31, 2018. Under the terms of these exchangeable debentures, the holders
may elect to require LI LLC to exchange the debentures for the value of a specified number of the underlying reference
shares, which LI LLC may honor through delivery of reference shares, cash or a combination thereof. Also, LI 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. LI LLC has disposed of some of the reference shares underlying certain of these exchangeable
debentures. For example, in connection with the Transactions, our company contributed its entire equity interest in Charter
Communications, Inc. to GCI Liberty. Shares of Charter serve as the underlying reference shares for the 1.75% Exchangeable
Debentures. Pursuant to a reorganization agreement and indemnification agreement entered into in connection with the
Transactions, our company, LI LLC and GCI Liberty agreed to cooperate with, and reasonably assist each other with respect
to, the commencement and consummation of one or more privately negotiated transactions with respect to the 1.75%
Exchangeable Debentures within six months of the closing of the Transactions. In June 2018, Qurate Retail repurchased
417,759 of the 1.75% Exchangeable Debentures, and GCI Liberty made a payment under the indemnification agreement to
Qurate Retail in the amount of $133 million. Following the initial six month period, the remaining indemnification from GCI
Liberty to LI LLC for certain payments made to a holder of the 1.75% Exchangeable Debentures pertains to the holder’s
ability to exercise its exchange right according to the terms of the 1.75% Exchangeable Debentures on or before October 5,
2023. However, we cannot give any assurance as to whether GCI Liberty will fulfill its indemnification obligations pursuant
to the indemnification agreement.
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As a result of LI LLC having disposed of these reference shares, any exercise of the exchange right by, or required
distribution of cash, securities or other payments to, holders of such debentures will require that LI LLC fund the required
payments from its own resources, which will depend on the availability of cash or other sources of liquidity to LI 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.
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 John C. Malone, a director of our company and our former
Chairman of the Board, Gregory B. Maffei, our former Chief Executive Officer and current Chairman of the Board, or
Michael George, our current Chief Executive Officer, 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 common
stock.
It may be difficult for a third party to acquire us, even if doing so may be beneficial to our stockholders. 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.
John C. Malone, a director of our company and our former Chairman of the Board, beneficially owns shares
representing the power to direct approximately 40% of the aggregate voting power in our company, due to his beneficial
ownership of approximately 95% of the outstanding shares of our Series B Qurate Retail common stock as of January 31,
2019.
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We have identified material weaknesses in our internal control over financial reporting, that, if not properly
remediated, could adversely affect our business and results of operations. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected
on a timely basis. As described in “Item 9A. Controls and Procedures,” we have concluded that our internal control over
financial reporting was ineffective as of December 31, 2018 due to material weaknesses. The identified material weaknesses,
at December 31, 2018, relate to information technology general controls (“ITGCs”) as well as certain business process
controls designed to compensate for UK revenue system ITGC failures. Specifically, the ITGCs were not designed and
operating effectively to ensure (i) that access to applications and data, and the ability to make program and job changes, were
adequately restricted to appropriate personnel and (ii) that the activities of individuals with access to modify data and make
program and job changes were appropriately monitored. Our business process controls (automated and manual) that are
dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. Further,
review controls intended to ensure revenue is appropriately recorded in the UK were not deemed effective.
While the control deficiencies did not result in any identified misstatements, a reasonable possibility exists that a
material misstatement to the annual or interim consolidated financial statements and disclosures will not be prevented or
detected on a timely basis.
As further described in “Item 9A. Controls and Procedures,” we are taking the necessary steps to remediate
the material weaknesses. However, as the reliability of the internal control process requires repeatable execution, the
successful on-going remediation of these material weaknesses will require on-going review and evidence of effectiveness
prior to concluding that the controls are effective. Therefore, we cannot assure you that the remediation efforts will remain
effective following their completion in the future or that additional or similar material weaknesses will not develop or be
identified.
Implementing any further changes to our internal controls may distract its officers and employees and entail material
costs to implement new processes and/or modify its existing processes. Moreover, these changes do not guarantee that we
will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or
consequent inability to produce accurate financial statements on a timely basis, could harm our business. In addition,
investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements
on a timely basis may harm the price of our common stock.
Item 1B. Unresolved Staff Comments
None.
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 U.S. owns its corporate headquarters and operations center in West Chester, Pennsylvania, which consist of
office space and include executive offices, video broadcast studios, showrooms, broadcast facilities and administrative
offices. QVC U.S. and QVC International also own call centers in San Antonio, Texas; Chesapeake, Virginia; Bochum and
Kassel, Germany; and Chiba-Shi, Japan. QVC U.S. and QVC International own distribution centers in Lancaster,
Pennsylvania; Suffolk, Virginia; Rocky Mount, North Carolina; Florence, South Carolina; Ontario, California; Chiba, Japan;
and Hücklehoven, Germany. Additionally, QVC International owns multi-functional buildings in Knowsley, United
Kingdom, Chiba, Japan and Brugherio, Italy. In Germany, QVC International owns its administrative offices within the
headquarters located in Düsseldorf, Germany which also includes leased video broadcast studios and facilities. To
supplement the facilities it owns, it also leases various facilities worldwide.
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zulily leases its corporate headquarters in Seattle, Washington, fulfillment centers in Lockbourne, Ohio, McCarran,
Nevada, Bethlehem, Pennsylvania, and corporate offices in Gahanna, Ohio, Shenzhen, China and Bellevue, Washington.
HSN owns a corporate headquarters, call center, and operations center in St. Petersburg, Florida along with a
distribution center in Piney Flats, Tennessee. Additionally, HSN leases distribution centers in Bristol, Virginia; Fontana,
California; Greenville, Tennessee; Morristown, Tennessee; and Roanoke, Virginia. Office space is leased in Ronkonkoma,
New York; New York, New York; St. Petersburg, Florida; and Maple Heights, Ohio.
Cornerstone owns an office and storage facility in Franconia, New Hampshire. Cornerstone leases its fulfillment
centers in Butler and Warren Counties in Ohio and Phoenix, Arizona. It also leases other properties consisting of
administrative offices, 20 retail stores and outlets, and photo centers in various locations throughout the United States.
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
Each series of the common stock of Qurate Retail, Inc. (formerly named Liberty Interactive Corporation, “Qurate
Retail,” the “Company,” “we,” “us” and “our”) trades on the Nasdaq Global Select Market. Our Series A and Series B QVC
Group common stock traded on the Nasdaq Global Select Market under the symbols “QVCA” and “QVCB,” respectively. On
May 23, 2018, the Company filed its restated certificate of incorporation, which (i) eliminated the tracking stock
capitalization structure of the Company and (ii) reclassified each outstanding share of our Series A and Series B QVC Group
common stock into one share of our Series A and Series B common stock, respectively. Following the reclassification, our
Series A and Series B common stock continued trading on the Nasdaq Global Select Market, but under the symbols
“QRTEA” and “QRTEB.” Stock price information for securities traded on the Nasdaq Global Select Market can be found on
the Nasdaq’s website at www.nasdaq.com. Although the reclassification resulted in stock name and related ticker symbol
changes, historical information for our Series B QVC Group common stock refers to such stock herein as our Series B
common stock. The following table sets forth the range of high and low sales prices of shares of our Series B common stock
for the years ended December 31, 2018 and 2017. Although our Series B common stock is traded on the Nasdaq Global
Select Market, an established public trading market does not exist for the stock, as it is not actively traded.
2017
First quarter
Second quarter
Third quarter
Fourth quarter
2018
First quarter
Second quarter
Third quarter
Fourth quarter
Holders
Qurate Retail
Series B (QRTEB)
High
Low
$
$
$
$
$
$
$
$
22.05
24.93
25.10
26.79
28.90
25.46
23.09
24.24
17.62
19.40
21.14
20.93
24.49
20.32
19.62
18.47
As of January 31, 2019, there were 2,685 and 77 record holders of our Series A and Series B Qurate Retail 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. See Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operation – Liquidity and Capital Resources.”
Securities Authorized for Issuance Under Equity Compensation Plans
Information required by this item is incorporated by reference to our definitive proxy statement for our 2019 Annual
Meeting of Stockholders that will be filed with the Securities and Exchange Commission on or before April 30, 2019.
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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 Qurate Retail common stock
ceased to be a tracking stock during the period following the LMC Split-Off 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 Qurate Retail common stock. 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 Qurate Retail common stock. In
connection with the TripAdvisor Holdings Spin-Off during August 2014, the board authorized $350 million for the
repurchase of either the Qurate Retail 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. On September 19, 2017, the board authorized the repurchase of an additional $1
billion of Series A QVC Group common stock. In March 2018, the board authorized the repurchase of an additional $693
million of Series A QVC Group common stock. Previous authorizations with respect to QVC Group common stock remain
effective and now apply to Qurate Retail common stock.
A summary of the repurchase activity for the three months ended December 31, 2018 is as follows:
Series A Qurate Retail Common Stock (QRTEA)
Period
October 1 - 31, 2018
November 1 - 30, 2018
December 1 - 31, 2018
Total
Total Number
of Shares
Purchased
6,228,812 $
4,890,275 $
5,800,744 $
16,919,831
Share
21.70
22.82
20.51
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
6,228,812 $
4,890,275 $
5,800,744 $
16,919,831
620 million
508 million
389 million
3,220 shares of Series A Qurate Retail 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, 2018.
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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
Intangible assets not subject to amortization (1)
Noncurrent assets of discontinued operations (2) (3) (4)
Total assets
Long-term debt
Deferred income tax liabilities
Noncurrent liabilities of discontinued operations (2) (3) (4)
Total equity (1)
Noncontrolling interest in equity of subsidiaries (2)
December 31,
2018
2017
2016
2015
2014
amounts in millions
$
653
903
825
2,449
2,306
96
$
$ 10,912
$
—
$ 17,841
$ 5,963
$ 1,925
$
—
$ 5,744
120
$
2,363
11,011
3,635
24,122
7,553
2,500
303
10,083
99
1,922
9,354
3,161
20,355
7,166
3,354
282
6,861
89
1,353
9,485
927
21,180
7,481
3,217
285
6,875
88
1,224
7,893
514
18,598
7,062
2,681
140
5,780
107
Years ended December 31,
2018
2017 2016 2015 2014
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 (1)
Earnings (loss) from continuing operations (4) (5):
Qurate Retail common stock
Liberty Ventures common stock
Basic earnings (loss) from continuing operations attributable to Qurate Retail, Inc. stockholders
per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock (3) (4)
Diluted earnings (loss) from continuing operations attributable to Qurate Retail, Inc. stockholders
per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock (3) (4)
$ 14,070 10,404 10,647
968
$
(363)
$
(68)
$
414
$
9
$
1,043
(355)
(200)
145
410
1,324
(381)
(162)
76
1
9,989 10,499
1,188
1,116
(387)
(360)
(19)
(178)
(57)
114
74
110
$
$
722
101
823
1,254
781
2,035
511
264
775
674
(43)
631
574
(36)
538
$
$
1.46
1.17
2.71
14.34
0.99
5.54
1.35
(0.36)
1.10
(0.43)
$
$
1.45
1.16
2.70
14.17
0.98
5.49
1.33
(0.36)
1.09
(0.43)
(1) On December 29, 2017, the Company acquired the remaining approximately 62% of HSN it did not already own in
an all-stock transaction, making HSN a wholly-owned subsidiary. In conjunction with the application of acquisition
accounting, the Company recorded a full step up in basis of HSN along with a gain between our historical basis and
the fair value of our interest in HSN.
(2) On August 27, 2014, the Company completed the TripAdvisor Holdings Spin-Off. The consolidated financial
statements of Qurate Retail 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 Item 1 “ Business” for further details on the TripAdvisor
Holdings Spin-Off.
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(3) The Expedia Holdings Split-Off was effected on November 4, 2016 as a split-off through the redemption of a
portion of Qurate Retail’s Series A and Series B Liberty Ventures common stock for shares of Expedia Holdings (as
defined below). The consolidated financial statements of Qurate Retail have been prepared to reflect the Company’s
interest in Expedia (as defined below) as a discontinued operation for the years ended December 31, 2016, 2015 and
2014.
(4) The GCI Liberty Split-Off (defined below) was effected on March 9, 2018. The split-off of Qurate Retail’s interest
in Liberty Broadband (as defined below) had a major effect on Qurate Retail’s operations. Accordingly, Qurate
Retail’s interest in Liberty Broadband is presented as a discontinued operation for the years ended December 31,
2018, 2017 and 2016.
(5) Includes earnings (losses) from continuing operations attributable to the noncontrolling interests of $48 million, $46
million, $39 million, $42 million and $40 million for the years ended December 31, 2018, 2017, 2016, 2015, and
2014, respectively.
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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 2 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 businesses and reportable segments are QVC U.S. and QVC International. QVC markets and sells a wide variety of
consumer products in the United States (“U.S.”) and several foreign countries, primarily by means of its televised shopping
programs and the Internet through its domestic and international websites and mobile applications. On December 29, 2017,
we acquired the approximately 62% of HSN we did not already own in an all-stock transaction (the “Merger”) making HSN
a wholly-owned subsidiary. On December 31, 2018, Qurate Retail transferred our 100% ownership interest in HSN to QVC,
Inc. through a transaction among entities under common control. Following this transaction, Cornerstone (a former
subsidiary of HSN) remains a subsidiary of Qurate Retail. HSN is a reportable segment, and Cornerstone is included in the
“Corporate and other” reportable segment. On October 1, 2015 we acquired zulily, llc (“zulily”), an online retailer offering
customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day. zulily
is a reportable segment. References throughout this annual report to “QVC” refer to QVC, Inc., which includes HSN, QVC
U.S. and QVC International.
Our “Corporate and other” category includes our consolidated subsidiary Cornerstone, along with various cost and
equity method investments. See discussion below for the entities that were included in Corporate and other in prior periods.
Prior to the Transactions (described and defined below), the Company utilized tracking stocks in its capital structure.
A 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. Qurate Retail had two
tracking stocks—QVC Group common stock and Liberty Ventures common stock, which were intended to track and reflect
the economic performance of Qurate Retail’s businesses, assets and liabilities attributed to the QVC Group and the Ventures
Group, respectively. The QVC Group was comprised of the Company’s wholly-owned subsidiaries QVC, zulily, HSN and
Cornerstone among other assets and liabilities. The Ventures Group was comprised of businesses not included in the QVC
Group including Evite Inc. (“Evite”) and our interests in Liberty Broadband Corporation (“Liberty Broadband”),
LendingTree, Inc. (“LendingTree”), investments in Charter Communications, Inc. (“Charter”) and ILG, Inc. (“ILG”), among
other assets and liabilities (which were all included in the Corporate and other category). The Company’s results are
attributed to the QVC Group and the Ventures Group through March 9, 2018.
the “Reorganization Agreement,” and
On March 9, 2018, Qurate Retail completed the transactions contemplated by the Agreement and Plan of
Reorganization (as amended,
the
“Transactions”) among General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a
Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail (“LI LLC”). Pursuant to the
Reorganization Agreement, GCI amended and restated its articles of incorporation (which resulted in GCI being renamed
GCI Liberty, Inc. (“GCI Liberty”)) and effected a reclassification and auto conversion of its common stock. After market
close on March 8, 2018, Qurate Retail’s board of directors approved the reattribution of certain assets and liabilities from
Qurate Retail’s Ventures Group to its QVC Group, which was effective immediately. The reattributed assets and liabilities
included cash, Qurate Retail’s interest in ILG, certain green energy investments, LI LLC’s exchangeable debentures, and
certain tax benefits.
transactions contemplated
thereby,
the
Following these events, Qurate Retail acquired GCI Liberty through a reorganization in which certain Qurate Retail
interests, assets and liabilities attributed to the Ventures Group were contributed (the “contribution”) to GCI Liberty in
exchange for a controlling interest in GCI Liberty. Qurate Retail and LI LLC contributed to GCI Liberty their entire equity
interest in Liberty Broadband, Charter, and LendingTree, the Evite operating business and other assets and liabilities
attributed to Qurate Retail’s Venture Group (following the reattribution), in exchange for (a) the issuance to LI LLC of a
number of shares of GCI Liberty Class A Common Stock and a number of shares of GCI Liberty Class B Common Stock
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equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures
common stock on March 9, 2018, respectively, (b) cash and (c) the assumption of certain liabilities by GCI Liberty.
Following the contribution, Qurate Retail effected a tax-free separation of its controlling interest in the combined
company (the “GCI Liberty Split-Off”), GCI Liberty, to the holders of Liberty Ventures common stock in full redemption of
all outstanding shares of such stock, in which each outstanding share of Series A Liberty Ventures common stock was
redeemed for one share of GCI Liberty Class A common stock and each outstanding share of Series B Liberty Ventures
common stock was redeemed for one share of GCI Liberty Class B common stock. Simultaneous with the closing of the
Transactions, QVC Group common stock became the only outstanding common stock of Qurate Retail, and thus QVC Group
common stock ceased to function as a tracking stock. On April 9, 2018, Liberty Interactive Corporation was renamed Qurate
Retail, Inc. On May 23, 2018, Qurate Retail amended its charter to eliminate the tracking stock capitalization structure and
reclassify each share of QVC Group common stock into one share of the corresponding series of new common stock of
Qurate Retail. Throughout this annual report, we refer to our Series A and Series B common stock as “Qurate Retail common
stock” and “QVC Group common stock.” In July 2018, the Internal Revenue Service (“IRS”) completed its review of the
GCI Liberty Split-Off and informed Qurate Retail that it agreed with the nontaxable characterization of the transactions.
Qurate Retail received an Issue Resolution Agreement from the IRS documenting this conclusion.
On October 17, 2018, Qurate Retail announced a series of initiatives designed to better position its HSN and QVC U.S.
businesses (“QRG Initiatives”). As part of the QRG Initiatives, QVC will close its fulfillment center in Lancaster,
Pennsylvania and has entered into an agreement to lease a new fulfillment center in Bethlehem, Pennsylvania, commencing
in 2019 (see note 15 to the accompanying consolidated financial statements). Expenditures related to the QRG Initiatives are
recorded as part of transaction related costs.
Disposals
On July 22, 2016, Qurate Retail 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 have a major effect on
Qurate Retail’s operations and financial results.
On November 4, 2016, Qurate Retail completed its previously announced split-off (the “Expedia Holdings Split-
Off”) of its former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). At the time of the
Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Qurate Retail’s former interest in
Expedia Group, Inc., formerly known as Expedia, Inc. (“Expedia”) and Qurate Retail’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 Qurate Retail on November 4, 2016.
Qurate Retail viewed Expedia and Bodybuilding as separate components and evaluated them separately for
discontinued operations presentation. Based on a quantitative analysis, the split-off of Qurate Retail’s interest in Expedia had
a major effect on Qurate Retail’s operations, primarily due to one-time gains on transactions recognized by
Expedia. Accordingly, the consolidated financial statements of Qurate Retail have been prepared to reflect Qurate Retail’s
interest in Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off
did not have a major effect on Qurate Retail’s historical results nor is it expected to have a major effect on Qurate Retail’s
future operations. Accordingly, Bodybuilding is not presented as a discontinued operation in the consolidated financial
statements of Qurate Retail. Bodybuilding is included in the Corporate and other segment through November 4, 2016.
As a result of the GCI Liberty Split-Off, Qurate Retail viewed LendingTree, Evite and Liberty Broadband as
separate components and evaluated them separately for discontinued operations presentation. Based on a quantitative
analysis, the split-off of Qurate Retail’s interest in Liberty Broadband had a major effect on Qurate Retail’s operations.
Accordingly, Qurate Retail’s interest in Liberty Broadband is presented as a discontinued operation. The disposition of Evite
and LendingTree as part of the GCI Liberty Split-Off did not have a major effect on Qurate Retail’s historical results nor is it
expected to have a major effect on Qurate Retail’s future operations. Accordingly, Evite and LendingTree are not presented
as discontinued operations.
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Strategies and Challenges
Televised Shopping Businesses. The goal of QVC is to extend its leadership in video commerce, e-commerce,
mobile commerce and social commerce by continuing to create the world’s most engaging shopping experiences, combining
the best of retail, media, and social, highly differentiated from traditional brick-and-mortar stores or transactional e-
commerce. QVC provides customers with curated collections of unique products, made personal and relevant by the power
of storytelling. QVC curates experiences, conversations and communities for millions of highly discerning shoppers, and also
curates large audiences, across its many platforms, for its thousands of brand partners.
QVC intends to employ several strategies to achieve these 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, video-rich shopping experiences across its broadcast networks, websites, mobile applications and social pages
(iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated
customer service experience. In addition, QVC expects to expand globally by leveraging its existing systems, infrastructure
and skills in other countries around the world.
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 broadcast programming, and increased spending from existing
customers. 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 services; (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.
Economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could
adversely affect demand for their products and services since a substantial portion of their revenue is derived from
discretionary spending by individuals, which typically falls during times of economic instability. Global financial markets
have recently experienced 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,
become uncertain or deteriorate, customers may respond by suspending, delaying, or reducing their discretionary spending. A
suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, our businesses’ ability
to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments
decline. Such weak economic conditions may also inhibit QVC’s expansion into new European and other markets. The
Company 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, or whether the U.K. will leave the
European Union with an agreement as to the terms of its withdrawal, it is possible that new terms may adversely affect
QVC’s operations and financial results in a number of ways, not all of which are currently readily apparent. On March 29,
2017, the U.K. invoked Article 50 of the Treaty of Lisbon, which is the first step of the U.K.’s formal exit from the EU. This
started the two year window in which the U.K. and the European Commission can negotiate future terms for imports, exports,
taxes, employment, immigration and other areas, ending in the exit of the U.K. from the EU. Failing the implementation of
an agreed extension, the U.K. is scheduled to withdraw from the E.U. on March 29, 2019. The U.K. government’s draft
agreement on the withdrawal of the U.K. from the E.U. was defeated in the House of Commons on January 15, 2019. As a
result, the final terms of the U.K.’s exit from the E.U. are, and will remain for the immediate future, unclear. The U.K. may
leave the E.U. without any agreement as to the terms of its withdrawal or the future economic relationship between the U.K.
and the E.U. It is also possible that the U.K. will withdraw its notification to leave the E.U. or that there will be a second
referendum on Brexit.
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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 Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or
withdraw from certain trade agreements. He has advocated for and imposed tariffs on goods imported into the United States,
particularly from China. On January 23, 2017, the President of the United States signed a presidential memorandum to
withdraw the U.S. from the Trans-Pacific Partnership. On November 30, 2018 the U.S., Mexico and Canada signed the
United States-Mexico-Canada Agreement, a successor to the North American Free Trade Agreement, which will impact
imports and exports among those countries. These and other proposed actions, if implemented, could adversely affect our
business because we sell imported products.
zulily. zulily’s objective is to be the leading online retail destination for shoppers. 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; (iv) invest in mobile platform and channels with which its customers want to engage; and (v) invest in
low cost supply chain systems in the U.S. and cross border.
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 may lead 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 our consolidated subsidiary Cornerstone, along with various cost and equity
method investments. For a more detailed discussion and analysis of the financial results of the principal reporting segments,
see "Results of Operations - Businesses" below.
Operating Results
Revenue
QVC U.S.
QVC International
HSN
zulily
Corporate and other
Inter-segment eliminations
Consolidated Qurate Retail
Former QVC Group
Former Ventures Group
Operating Income (Loss)
QVC U.S.
QVC International
HSN
zulily
Corporate and other
Consolidated Qurate Retail
Former QVC Group
Former Ventures Group
Adjusted OIBDA
QVC U.S.
QVC International
HSN
zulily
Corporate and other
Consolidated Qurate Retail
Former QVC Group
Former Ventures Group
$
$
$
$
$
$
Years ended December 31,
2018
2017
2016
amounts in millions
6,349
2,738
2,202
1,817
973
(9)
14,070
6,140
2,631
NA
1,613
23
(3)
10,404
6,120
2,562
NA
1,547
428
(10)
10,647
(a)
(a)
10,381
23
10,219
428
1,112
351
49
(95)
(93)
1,324
994
353
(38)
(129)
(137)
1,043
915
288
NA
(152)
(83)
968
(a)
(a)
1,100
(57)
1,011
(43)
1,417
429
213
108
(13)
2,154
(a)
(a)
1,455
451
NA
91
(47)
1,950
1,977
(27)
1,435
405
NA
112
(13)
1,939
1,936
3
(a) Due to the GCI Liberty Split-Off, including the redemption of outstanding shares of Liberty Ventures common
stock, the Ventures Group and the QVC Group tracking stock structure no longer exists as of March 9, 2018,
however amounts were attributed to the Ventures Group and the QVC Group from January 1, 2018 through
March 9, 2018. Attributed to the Ventures Group was revenue of $3 million, operating loss of $8 million, and an
Adjusted OIBDA loss of $5 million for the year ended December 31, 2018.
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Revenue. Our consolidated revenue increased 35.2% and decreased 2.3% for the years ended December 31, 2018
and 2017, respectively, as compared to the corresponding prior year periods. The increase was primarily related to the
acquisition of HSN, as no HSN revenue was included in 2017 results due to the timing of the acquisition. Corporate and
other revenue increased $950 million for the year ended December 31, 2018, as compared to the corresponding period in the
prior year due to the purchase of Cornerstone which had revenue of $970 million for the year ended December 31, 2018,
partially offset by a decrease in revenue due to the disposition of Evite in the GCI Liberty Split-Off ($21 million). Corporate
and other revenue decreased $405 million for the year ended December 31, 2017, as compared to the corresponding prior
year period due to the disposition of Bodybuilding in November 2016 as part of the Expedia Holdings Split-Off ($355
million) and the CommerceHub Spin-Off in July 2016 ($51 million). QVC U.S. revenue increased $209 million and
increased $20 million for the years ended December 31, 2018 and 2017, respectively, as compared to the corresponding prior
year periods. QVC International revenue increased $107 million and increased $69 million for the years ended December 31,
2018 and 2017, respectively, as compared to the corresponding prior year periods. zulily’s revenue increased $204 million
and $66 million during the years ended December 31, 2018 and 2017, respectively, as compared to the corresponding prior
year period. See "Results of Operations - Businesses" below for a more complete discussion of the results of operations of
QVC U.S. and QVC International, HSN and zulily.
Operating income (loss). Our consolidated operating income increased $281 million and increased $75 million
for the years ended December 31, 2018 and 2017, respectively, as compared to the corresponding prior year periods. QVC
U.S. operating income increased $118 million and increased $79 million for the years ended December 31, 2018 and 2017,
respectively as compared to the corresponding prior year periods. QVC International operating income decreased $2 million
and increased $65 million for the years ended December 31, 2018 and 2017, respectively as compared to the corresponding
prior year periods. zulily’s operating losses improved $34 million and $23 million for the years ended December 31, 2018
and 2017, respectively, as compared to the corresponding prior year periods. HSN had operating income of $49 million for
the year ended December 31, 2018. HSN’s operating loss in 2017 was the result of $38 million of severance-related
expenses, including salaries and wages and stock-based compensation expense, recorded in the period ended December 31,
2017. Operating losses for Corporate and other improved $44 million for the year ended December 31, 2018, as compared to
the corresponding period in the period year, due to fewer corporate costs at the Liberty Ventures Group due to the GCI
Liberty Split-Off in the first quarter of 2018 and a decrease in stock compensation expense, partially offset by an increase in
purchase accounting amortization at Cornerstone in 2018. Operating losses for Corporate and other increased $54 million for
the year ended December 31, 2017, as compared to the corresponding prior year period, primarily due to an increase in stock
compensation expense as a result of the stock option exchange (see note 12 to the accompanying consolidated financial
statements), and transaction costs associated with the acquisition of HSN, partially offset by the disposition of Bodybuilding
in November 2016 as part of the Expedia Holdings Split-Off, and the CommerceHub Spin-Off. See "Results of Operations -
Businesses" below for a more complete discussion of the results of operations of QVC U.S. and QVC International, HSN 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 depreciation and
amortization, stock-based compensation, certain purchase accounting adjustments, separately reported litigation settlements,
transaction related costs (including restructuring, integration, and advisory fees), 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 16 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 increased $204 million and $11 million for the years ended December 31, 2018 and
2017, respectively, as compared to the corresponding prior year periods. The increase was primarily related to HSN which
had Adjusted OIBDA of $213 million for the year ended December 31, 2018, and no Adjusted OIBDA for the year
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Table of Contents
ended December 31, 2017 due to the timing of the acquisition. QVC U.S. Adjusted OIBDA decreased $38 million and
increased $20 million for the years ended December 31, 2018 and 2017, respectively, as compared to the corresponding prior
year periods. QVC International Adjusted OIBDA decreased $22 million and increased $46 million for the years ended
December 31, 2018 and 2017, respectively, as compared to the corresponding prior year periods. zulily’s Adjusted OIBDA
increased $17 million and decreased $21 million for the years ended December 31, 2018 and 2017, respectively, as compared
to the corresponding prior year periods. Corporate and other Adjusted OIBDA increased $34 million for the year ended
December 31, 2018, as compared to the corresponding period in the prior year due to the acquisition of Cornerstone as well
as fewer corporate costs compared to the prior year. Corporate and other Adjusted OIBDA decreased $34 million for the
year ended December 31, 2017, as compared to the corresponding period in the prior year, primarily due to the disposition of
Bodybuilding in November 2016 as part of the Expedia Holdings Split-Off ($24 million), and the CommerceHub Spin-Off in
July 2016 ($16 million). See "Results of Operations - Businesses" below for a more complete discussion of the results of
operations of QVC U.S. and QVC International, HSN and zulily.
Other Income and Expense
Components of Other Income (Expense) are presented in the table below.
Interest expense
Share of earnings (losses) of affiliate, net
Realized and unrealized gains (losses) on financial instruments, net
Gains (losses) on transactions, net
Tax sharing income (expense) with GCI Liberty, Inc.
Other, net
Other income (expense)
Former QVC Group
Former Ventures Group
Years ended December 31,
2018
2017
2016
amounts in millions
$
$
(381)
(162)
76
1
32
(7)
(441)
(a)
(a)
(355)
(200)
145
410
—
7
7
151
(144)
(363)
(68)
414
9
—
131
123
(203)
326
(a) Due to the GCI Liberty Split-Off, the Ventures Group and the QVC Group tracking stocks no longer exist as of
March 9, 2018, however amounts were attributed to the Ventures Group and the QVC Group from January 1,
2018 through March 9, 2018. Attributed to the Ventures Group was other income of $120 million for the year
ended December 31, 2018 primarily related to mark-to-market adjustments on the investments in Charter and
ILG.
Interest expense. Interest expense increased $26 million and decreased $8 million for the years ended
December 31, 2018 and 2017, respectively, as compared to the corresponding prior year periods. The increase in interest
expense for the year ended December 31, 2018 is due to the HSN Bank Credit Facility that was not included during the year
ended December 31, 2017, and higher amounts outstanding and higher average interest rates on variable rate debt at
QVC. The decrease in interest expense for the year ended December 31, 2017 is due to higher average debt balances at the
corporate level in 2016, and the redemption of the majority of our 0.75% Exchangeable Senior Debentures due 2043 during
the second and third quarter of 2016.
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Share of earnings (losses) of affiliates. The following table presents our share of earnings (losses) of affiliates:
HSN (1)
FTD Companies, Inc. ("FTD") (2)
LendingTree (3)
Other (4)
Years ended December 31,
2018
2017
2016
amounts in millions
$ NA
(70)
—
(92)
$ (162)
40
(146)
7
(101)
(200)
48
(41)
12
(87)
(68)
(1) On December 29, 2017, the Company acquired the approximately 62% of HSN it did not already own in an all-stock
transaction making HSN a wholly-owned subsidiary of the Company. As HSN is no longer an equity affiliate as of
this date, the Company has not recorded share of earnings (losses) related to HSN for the year ended December 31,
2018.
(2) FTD recorded an impairment during the second quarter of 2018, and Qurate Retail recorded its portion of FTD’s
impairment. The Company recorded an additional impairment on its investment in FTD during the fourth quarter of
2018. During the year ended December 31, 2017, the carrying value of Qurate’s investment in FTD was written
down to its fair value.
(3) As a result of the GCI Liberty Split-Off, LendingTree is no longer an equity affiliate of the Company as of March 9,
2018, and the Company’s share of LendingTree’s losses for the year ended December 31, 2018 are recorded through
March 9, 2018.
(4) The share of losses in the “Other” category is primarily related to our investments in alternative energy solution
entities. These entities typically operate at a loss and we record our share of such losses. We note these entities
typically have favorable tax attributes and credits, which are recorded in our tax accounts.
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:
Equity securities
Exchangeable senior debentures
Indemnification asset
Other financial instruments
Years ended December 31,
2018 2017 2016
amounts in millions
$ 155
(3)
(70)
(6)
76
$
434
(193)
—
(96)
145
723
(308)
—
(1)
414
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 decrease for the year ended December 31, 2018 as compared to the
corresponding prior year period was primarily driven by a decrease in the unrealized gain on the investment in Charter and
the contribution of Charter to GCI Liberty in the GCI Liberty Split-Off, a decrease in unrealized gains on the investment in
ILG, and an unrealized loss on the indemnification asset as a result of the GCI Liberty Split-Off, partially offset by an
increase in unrealized gains on exchangeable debt and derivative instruments. The decrease for the year ended December 31,
2017 as compared to the corresponding prior year period was primarily driven by the investments in Liberty Broadband and
Charter experiencing higher gains during 2016 compared to 2017, as well as the exchange of a majority of our 0.75%
Exchangeable Senior Debentures due 2043 during 2016 (see note 6 to the accompanying consolidated financial statements
for additional discussion).
Gains on transactions, net. Gain on transactions, net, decreased $409 million and increased $401 million for the
years ended December 31, 2018 and 2017, respectively, as compared to the corresponding prior year periods. The decrease
in gain on transactions, net for the year ended December 31, 2018 is due to the acquisition of HSN in 2017. In
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conjunction with the application of acquisition accounting, we recorded a full step up in basis of HSN along with a gain
between our historical basis and the fair value of our interest in HSN in 2017. 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.
Tax sharing income (expense) with GCI Liberty. Due to the GCI Liberty Split-Off, the Company entered into a
tax sharing agreement with GCI Liberty. As a result, the Company recognized tax sharing income of $32 million for the year
ended December 31, 2018.
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 decreased $14 million for the year ended December 31, 2018 when
compared to the corresponding prior year period primarily due to a loss on extinguishment related to the exchange of the
1.75% Exchangeable Debentures due 2046 (the “1.75% Exchangeable Debentures”) in June 2018 (see note 6 of the
accompanying consolidated financial statements), partially offset by an increase in foreign exchange gains and interest
income. Other, net decreased $124 million for the year ended December 31, 2017 when compared to the corresponding prior
year period primarily due to a change in gain (loss) on dilution of investments of $80 million and a change in foreign
exchange gains (losses) of $44 million.
Income taxes. The Company had an income tax expense of $60 million, income tax benefit of $985 million and
income tax expense of $316 million for the years ended December 31, 2018, 2017 and 2016, respectively. Our effective tax
rate for the years ended December 31, 2018, 2017 and 2016 was 6.8%, 93.8% and 29.0% respectively. In 2018 the effective
tax rate was lower than the U.S. federal tax of 21% primarily due to tax benefits from tax credits and incentives generated by
our alternative energy investments, a reduction in the Company’s state effective tax rate used to measure deferred taxes
resulting from the GCI Liberty Split-Off in March 2018, and a reduction in the Company’s state effective tax rate used to
measure deferred taxes resulting from a state law change during the second quarter. In connection with the analysis of the
impact of the Tax Cuts and Jobs Act (the “Tax Act”), as discussed in note 9 in the accompanying consolidated financial
statements, the Company has recorded a discrete net tax benefit in the period ending December 31, 2017. This net benefit
primarily consisted of a net benefit for the corporate rate reduction. In addition our tax rate was impacted by the
consolidation of our equity method investment in HSN during the year ended December 31, 2017. The effective tax rate in
2016 was less than the U.S. federal tax rate of 35% primarily due to tax credits and incentives derived from our alternative
energy investments.
Net earnings. We had net earnings of $964 million, $2,487 million and $1,274 million for the years ended
December 31, 2018, 2017 and 2016, 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, 2018 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, equity issuances, dividend and interest
receipts, proceeds from asset sales, monetization of our public investment portfolio, debt (including availability under QVC’s
Bank Credit Facilities, (the “Fourth Amended and Restated Credit Facility”), as discussed in note 8 of the accompanying
consolidated financial statements) and cash generated by the operating activities of our wholly-owned subsidiaries. Cash
generated by the operating activities of our subsidiaries is only a source of liquidity to the extent such cash exceeds the
working capital needs of the subsidiaries and is not otherwise restricted such as, in the case of QVC and zulily, due to a
requirement that a leverage ratio (defined as the ratio of subsidiaries’ consolidated total debt to Adjusted OIBDA for the most
recent four fiscal quarter period) of less than 3.5 to 1.0 must be maintained.
During the year, there were no changes to our corporate debt credit ratings or our consolidated subsidiaries' debt
credit ratings, except for LI, LLC’s issue-level rating which was downgraded to BB- from BB by S&P Global Ratings in
March 2018. All other ratings remained unchanged. Qurate Retail and its subsidiaries are in compliance with their debt
covenants as of December 31, 2018.
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As of December 31, 2018, Qurate Retail's liquidity position consisted of the following:
QVC U.S. and QVC International
HSN
zulily
Corporate and other
Total Qurate Retail
Cash and cash
equivalents
Equity
securities
amounts in millions
$
$
503
40
47
63
653
—
—
—
96
96
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 $2.3 billion available for
borrowing under the QVC Bank Credit Facility at December 31, 2018. As of December 31, 2018, QVC had approximately
$216 million of cash and cash equivalents held in foreign subsidiaries that is available for domestic purposes with no
significant tax consequences upon repatriation to the U.S. QVC accrues taxes on the unremitted earnings of its international
subsidiaries. Approximately 70% of this foreign cash balance was that of QVC Japan. QVC owns 60% of QVC Japan and
shares all profits and losses with the 40% minority interest holder, Mitsui & Co, LTD. QVC believes that it currently has
appropriate legal structures in place to repatriate foreign cash as tax efficiently as possible and meet the business needs of
QVC.
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
Net cash provided (used) by operating activities
Net cash provided (used) by investing activities
Net cash provided (used) by financing activities
Years ended December 31,
2018
2017
2016
amounts in millions
$ 1,273
$
47
$ (1,574)
1,490
(391)
(1,036)
1,443
908
(1,572)
During the year ended December 31, 2018, Qurate Retail's primary uses of cash were the GCI Liberty Split-Off of
$475 million, repurchases of Series A Qurate Retail common stock of $988 million, and net repayments of certain debt
obligations of approximately $174 million (including the repurchase of a portion of the 1.75% Exchangeable Debentures),
partially offset by proceeds from the sale of certain cost investments of $562 million.
The projected uses of Qurate Retail’s cash, outside of normal operating expenses (inclusive of tax payments), are the
costs to service outstanding debt, approximately $340 million for interest payments on outstanding debt, corporate level and
other subsidiary debt, anticipated capital improvement spending of approximately $290 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
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
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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
Purchase orders and other obligations (3)
Total
Payments due by period
Less than
1 year
After
2 - 3 years 4 - 5 years 5 years
Total
amounts in millions
$ 7,591
3,776
378
1,940
$ 13,685
433
343
72
1,892
2,740
64
673
113
42
892
2,630 4,464
2,113
115
1
6,693
647
78
5
3,360
(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, 2018, (ii) assume the interest rates on our
variable rate debt remain constant at the December 31, 2018 rates and (iii) assume that our existing debt is
repaid at maturity.
(3) Amounts include open purchase orders for inventory and non-inventory purchases along with other contractual
obligations.
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, 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 equity securities, financial instruments and our exchangeable senior debentures.
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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. As of December 31, 2018 and 2017, the carrying value of our Fair Value Option securities was
zero and $2,275 million, respectively.
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, 2018, the principal amount and carrying value of our exchangeable debentures were $1,517 million and $1,334
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, and our determination of the
estimated fair value allocation of net tangible and identifiable intangible assets acquired in business combinations. 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, 2018, the intangible assets not subject to amortization for each of our significant reportable
segments were as follows:
QVC U.S.
QVC International
HSN
zulily
Corporate and other
$
$
Goodwill
Trademarks
amounts in millions
2,428
—
597
870
—
3,895
4,305
860
923
917
12
7,017
Total
6,733
860
1,520
1,787
12
10,912
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 a quantitative 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 quantitative 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 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 impairments in 2018, 2017
and 2016. In 2018, an impairment of $30 million to HSN’s tradenames was recorded. There were no impairments of other
intangible assets in 2017 and 2016.
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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, 2018, 2017 and 2016, sales returns represented 17.4%, 18.1% and 18.3% 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, 2018, QVC's inventory was $1,280 million, which was net of the obsolescence
adjustment of $143 million. At December 31, 2017, inventory was $1,204 million, which was net of the obsolescence
adjustment of $92 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 a provision for doubtful accounts in Selling, general,
and administrative expenses in our consolidated statements of operations. At December 31, 2018, QVC's trade accounts
receivable were $1,787 million, net of the allowance for doubtful accounts of $112 million. At December 31, 2017, trade
accounts receivable were $1,680 million, net of the allowance for doubtful accounts of $91 million. Each of these estimates
requires management judgment and may not reflect actual results.
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 U.S. and QVC International
QVC U.S. and QVC International are retailers of a wide range of consumer products, which are marketed and sold
primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.
QVC U.S.'s televised shopping programs, including live and recorded content, are broadcast across multiple
channels nationally on a full-time basis, including QVC, QVC2, and Beauty iQ. QVC U.S.’s programming is also available
on QVC.com, QVC's U.S. website; mobile applications via streaming video; over-the-air broadcasters; and over-the-top
content platforms (Roku, Apple TV, Amazon Fire, Facebook, etc.). QVC International’s televised shopping programs,
including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan,
the U.K., the Republic of Ireland, Italy and France. In some of the countries where QVC International operates, its televised
shopping programs are broadcast across multiple QVC channels: QVC Style and QVC2 in Germany and QVC Beauty, QVC
Extra, QVC Style in the U.K. Similar to the U.S., QVC International’s businesses also engage customers via websites, mobile
applications and social pages. QVC International employs product sourcing teams who select products tailored to the
interests of each local market.
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QVC U.S. and QVC International's operating results were as follows:
Net revenue
Cost of sales
Operating expenses
SG&A expenses (excluding stock-based compensation and transaction
related costs)
Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Transaction related costs
Operating income
$
$
Net revenue was generated from the following geographical areas:
QVC U.S.
QVC International
Years ended December 31,
2018
2017
2016
amounts in millions
9,087
(5,789)
(612)
8,771 8,682
(5,598) (5,540)
(606)
(601)
(840)
1,846
(39)
(303)
(41)
1,463
(666)
(696)
1,906 1,840
(32)
(605)
—
1,347 1,203
(31)
(519)
(9)
Years ended December 31,
2017
2018
2016
amounts in millions
$
$
6,349
2,738
9,087
6,140
2,631
8,771
6,120
2,562
8,682
QVC U.S. and QVC International's consolidated net revenue increased 3.6% and 1.0% for the years ended
December 31, 2018 and 2017, respectively, as compared to the corresponding prior years. The 2018 increase of $316 million
in net revenue was primarily comprised of an increase of $269 million due to a 2.7% increase in units sold, $102 million due
to the inclusion of Private Label Credit Card (“PLCC”) income in the U.S. as a result of the adoption of ASC 606, $83
million in favorable foreign currency exchange rates and a $10 million increase in shipping and handling revenue. This was
primarily offset by a 1.1% decrease in average selling price per unit ("ASP") attributing $111 million, and an increase of $35
million in estimated product returns. The changes in units sold, foreign exchange rates, ASP and estimated product returns
are partially impacted by the change in the timing of revenue recognition as part of the adoption of ASC 606. The impact of
this change was $21 million for the year ended December 31, 2018 in comparison to the year ended December 31, 2018
without the adoption of ASC 606. The 2017 increase of $89 million in net revenue was primarily comprised of an increase of
$405 million due to a 4.2% increase in units sold. This was primarily offset by a 2.3% decrease in ASP attributing $237
million, $33 million due to unfavorable foreign currency rates, a decrease of $27 million in shipping and handling revenue, a
$15 million decrease in miscellaneous income and an increase of $4 million in estimated product returns.
During the years ended December 31, 2018 and 2017, 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. QVC’s product margins may continue to be under pressure due to the devaluation of foreign currencies, and it will
attempt to reduce its exposure through pricing and vendor negotiations as Brexit negotiations progress.
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
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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, 2018
Foreign
Currency
Exchange
Impact
Year ended December 31, 2017
Foreign
Currency
Exchange
Impact
U.S. dollars
QVC U.S.
QVC International
3.4 %
4.1 %
Constant currency
3.4 %
0.9 %
— %
3.2 %
U.S. dollars
0.3 %
2.7 %
Constant currency
0.3 %
4.0 %
— %
(1.3)%
In 2018, the QVC U.S. net revenue increase was primarily due to a 3.8% increase in units shipped, $102 million due
to the inclusion of PLCC income and a $14 million increase in shipping and handling revenue. This increase was offset by a
1.7% decrease in ASP and a $41 million increase in estimated product returns. QVC U.S. experienced shipped sales growth
in all categories except jewelry and home. QVC International net revenue growth in constant currency was primarily due to a
0.9% increase in units shipped, driven by increases in the U.K. and Japan and a $6 million decrease in estimated product
returns driven by Japan. This was offset by a $4 million decrease in shipping and handling revenue and a slight decrease in
ASP. QVC International experienced shipped sales growth in constant currency in electronics, beauty and home.
In 2017, the QVC U.S. net revenue increase was primarily due to a 3.7% increase in units shipped and a decrease in
estimated product returns. This increase was offset by a 2.9% decrease in ASP, a $32 million decrease in shipping and
handling revenue and a $14 million decrease in miscellaneous income. QVC U.S. experienced shipped sales growth in all
categories except jewelry. The decreases in net shipping and handling revenue was a result of a decrease in shipping and
handling revenue per unit from promotional offers. The decrease in estimated product returns was primarily due to an overall
lower return rate across all product categories except jewelry. The decrease in net shipping and handling revenue was a result
of a decrease in shipping and handling revenue per unit from promotional offers. QVC International net revenue growth in
constant currency was primarily due to a 5.0% increase in units shipped, driven by increases in Japan, Germany, France and
the U.K. offset by a decrease in units shipped in Italy. There was a $5 million increase in shipping and handling revenue,
primarily driven by Japan. This was offset by a decrease of 1.0% in ASP, primarily driven in Japan and Germany offset by
increases in Italy and the U.K. and a $20 million increase in estimated product returns, driven by all markets except
Japan. QVC International experienced shipped sales growth in constant currency in all categories except electronics and
jewelry.
QVC U.S. and QVC International's cost of sales as a percentage of net revenue was 63.7%, 63.8% and 63.8% for
the years ended December 31, 2018, 2017 and 2016, respectively. The slight decrease in cost of goods sold as a percentage
of revenue in 2018 is primarily due to the inclusion of PLCC income within net revenue, which was previously recorded as
an offset to selling, general and administrative expenses, offset somewhat by higher warehouse and freight costs.
Operating expenses are principally comprised of commissions, order processing and customer service expenses,
credit card processing fees, and telecommunications expenses. Operating expenses increased $11.0 million or 1.8% and
decreased $5.0 million or 0.8% for the years ended December 31, 2018 and 2017, respectively. The increase in 2018 was
primarily due to a $10 million increase in credit card fees primarily in the U.S. and $6 million due to unfavorable exchange
rates, which was partially offset by a $2 million decrease in commissions primarily in the U.S., offset by increases in the
U.K. and Japan and a $2 million decrease of telephone expenses primarily in the U.S. The decrease in 2017 was primarily
due to favorable exchange rates.
SG&A expenses (excluding stock compensation) include personnel, information technology, provision for doubtful
accounts, production costs and marketing and advertising expense and during 2017, credit card income. Such expenses
increased $174 million, and were 9% of net revenue for the year ended December 31, 2018 as compared to the
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prior year and decreased $30 million and were 8% of net revenue for the year ended December 31, 2017 as compared to the
prior year, as a result of a variety of factors.
The increase in 2018 was primarily due to the reclassification of PLCC income, attributing $105 million as a result
of the adoption of ASC 606, which was previously recorded as an offset to selling, general and administrative expenses for
the year ended December 31, 2017. Additionally, there was a $29 million increase in outside services across all markets, a
$21 million increase in bad debt expense primarily in the U.S. and to a lesser extent, Japan, a $14 million increase in
marketing expenses primarily in the U.S. and a $12 million increase due to unfavorable exchange rates. The increase in bad
debt expense is due to favorability in default rates from prior periods, mostly related to the Easy-Pay program in the U.S.
during the year ended December 31, 2017. These increases were partially offset by a $8 million decrease in personnel costs
primarily in the U.S. and Germany.
The decrease in 2017 was primarily due to a decrease in bad debt expense of $35 million, a decrease in severance
expense of $13 million, $4 million from favorable foreign currency rates and a $6 million increase in credit card income
offset by an increase in bonus expense of $33 million and a $4 million increase in marketing expenses. The decrease in bad
debt expense was primarily related to lower default rates associated with the Easy-Pay program in the U.S. The increase in
credit card income was due to the favorable economics of the PLCC portfolio in the U.S. The increase in marketing expenses
was primarily due to an increase in the investment made to eMarketing partially offset by discontinuing the naming rights to
the Chiba Marine Stadium in Japan.
QVC U.S. recorded $41 million and $9 million of transaction related costs for the years ended December 31, 2018
and 2017, respectively. There were no transaction related costs for the year ended December 31, 2016. The increase in
transaction related costs in 2018 is primarily related to severance payments related to the future closure of QVC's Lancaster,
PA fulfillment center and other initiatives to deliver long term growth.
Stock-based compensation includes compensation related to options and restricted stock granted to certain officers
and employees. QVC U.S. and QVC International recorded $39 million, $31 million and $32 million of stock-based
compensation expense for the years ended December 31, 2018, 2017 and 2016, respectively. The increase in 2018 is
primarily due to transfers of certain zulily employees to QVC.
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,
2018
2017
2016
$
$
amounts in millions
97
113
210
155
93
61
519
2
3
5
146
87
65
303
146
169
315
142
100
48
605
For the year ended December 31, 2018, acquisition related amortization expense decreased primarily due to the end
of the useful lives of certain affiliate agreements and customer relationships established at the time of Qurate Retail's
acquisition of QVC in 2003. This was offset by an increase in channel placement amortization related to the addition of
Beauty iQ in the U.S. and the increase in depreciation related to the additions at the California distribution center.
HSN
On December 29, 2017, Liberty acquired the approximately 62% of HSN it did not already own in an all-stock
transaction making HSN a wholly-owned subsidiary. On December 31, 2018, Qurate Retail transferred our 100% ownership
interest in HSN to QVC, Inc. through a transaction among entities under common control. HSN’s former
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subsidiary, Cornerstone, remains a subsidiary of Qurate Retail and is included in the “Corporate and other” reportable
segment (see note 16 in the accompanying consolidated financial statements). The information presented in this section
relates to the HSN reportable segment. With the exception of $38 million of severance-related costs incurred on December
30, 2017, HSN’s results of operations are not included in our consolidated operating results for the year ended December 31,
2017, as the final two days of the period were considered immaterial. However, we believe a discussion of HSN’s stand
alone results promotes a better understanding of the overall results of its business.
HSN’s stand-alone operating results for the last three years were as follows:
Net revenue
Cost of sales
SG&A expenses (excluding stock-based compensation and
acquisition related expenses)
Adjusted OIBDA
Impairment of intangible assets
Stock-based compensation
Depreciation and amortization
Transaction related costs (1)
Operating income (loss)
$
$
Years ended
December 31,
December 31,
December 31,
2018
2017 (2)
2016 (2)
amounts in millions
2,202
(1,466)
2,343
(1,560)
2,479
(1,663)
(523)
213
(30)
(7)
(108)
(19)
49
(563)
220
—
(17)
(31)
(69)
103
(557)
259
—
(15)
(29)
—
215
(1) For the year ended December 31, 2017, Transaction related costs includes $69 million of transaction related costs related
to the acquisition of HSN by the Company.
(2) HSN has reclassified certain costs between financial statement line items to conform with Qurate Retail’s reporting
structure for ease of comparability for the periods presented.
HSN’s net sales primarily relate to the sale of merchandise, including shipping and handling fees, and are reduced
by incentive discounts and actual and estimated sales returns. Sales taxes collected are not included in net sales. Digital sales
include sales placed through our websites and our mobile applications, including tablets and smart phones. Revenue is
recorded when delivery to the customer has occurred. Delivery is considered to have occurred when the customer takes title
and assumes the risks and rewards of ownership, which is on the date of shipment. HSN’s sales policy allows customers to
return virtually all merchandise for a full refund or exchange, subject to pre-established time restrictions.
HSN's net revenue decreased 6.0% and 5.5% for the years ended December 31, 2018 and December 31, 2017,
respectively, as compared to the corresponding prior years. The $141 million decrease in net revenue for the year ended
December 31, 2018 was primarily attributable to a 9.3% decrease in units shipped, partially offset by a 0.7% increase in ASP,
a $35 million decrease in estimated product returns and an increase in shipping revenue. The sales mix shifted from apparel,
jewelry and electronics to home, beauty and accessories.
The decrease in net revenue for the year ended December 31, 2017 was primarily attributed to a 3.8% decrease in
ASP, a 3.0% decrease in units shipped and a 21.7% decrease in shipping and handling revenue. The decline was partially
offset by a 1.4% improvement in the sales return rate. HSN experienced sales declines in all categories.
HSN's cost of sales as a percentage of net revenue was 66.6%, 66.6% and 67.1% for the years ended December 31,
2018, 2017 and 2016, respectively. For the year ended December 31, 2018, cost of sales as a percentage of net revenue was
consistent as compared to the corresponding prior year. The decrease for the year ended December 31, 2017, as compared to
the prior year, was primarily attributed to increased product margins and a favorable inventory obsolescence provision,
partially offset by higher freight costs driven largely by annual rate increases with HSN’s outbound shipping carriers.
II-21
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HSN’s SG&A expenses (excluding stock-based compensation and transaction related costs) include personnel,
commissions, information technology, order processing and customer service expenses, credit card processing fees, provision
for doubtful accounts, productions costs, marketing and advertising expense, and prior to 2018, PLCC income. These
expenses decreased $40 million, and as a percentage of net revenue, decreased from 24.0% to 23.8% for the year ended
December 31, 2018, as compared to the prior year. The decrease in SG&A expense for the year ended December 31, 2018
was primarily due to decreases in commissions of $14 million, personnel costs of $12 million, bad debt expense of $10
million, customer service costs of $10 million and lower credit card costs of $5 million, which were partially offset by the
reclassification of PLCC income, attributing a $16 million increase as a result of the adoption of ASC 606. PLCC income
was previously recorded as an offset to SG&A. The decrease in commissions is due to the renegotiation of certain long-term
contracts with cable providers which resulted in the payment and capitalization of certain payments for television distribution
during 2018, which had an impact of $10 million of amortization as compared to the previous agreements under which
payments were expensed over the period and recorded in SG&A. The decrease in personnel costs was primarily due to
synergies realized from the QVC integration and lower bonus expense. The decrease in bad debt expense is due to lower
usage and improved loss rates of HSN’s Flexpay program. The decrease in customer service is driven by the decrease in sales
and integration synergies.
HSN’s SG&A expenses increased $6 million, and as a percentage of revenue increased from 22.5% to 24.0% for the
year ended December 31, 2017, as compared to 2016. The increase in SG&A expense was primarily due to higher personnel
costs of $8 million and an increase in bad debt expense of $5 million related to HSN’s Flexpay program, partially offset by
lower marketing expense of $8 million. The increase in personnel costs was primarily due to higher bonus expense and
higher wages driven by annual merit increases.
HSN recorded an impairment loss of $30 million for the year ended December 31, 2018 related to the change in the
fair value of its trademarks. There were no impairment losses recorded by HSN for the years ended December 31, 2017 and
2016.
Stock-based compensation includes compensation related to stock appreciation rights and restricted stock units
granted to certain employees. HSN recorded $7 million, $17 million and $15 million of stock-based compensation expense
for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease in 2018 is due to the integration-related
synergies. The increase in 2017 is due to the acceleration of vesting of certain awards for employees terminated in connection
with the acquisition of HSN by Qurate Retail, partially offset by the reversal of expense for unvested awards upon the
resignation of HSN’s former Chief Executive Officer in 2017. Of the $17 million of stock-based compensation included in
the year ended December 31, 2017, $8 million of these costs were recorded by HSN during the two-day period after the
acquisition and are included in the accompanying consolidated statement of operations.
HSN’s depreciation and amortization expense increased $77 million and $2 million for the years ended
December 31, 2018 and 2017, respectively, as compared to the corresponding prior years. The increase in 2018 is primarily
attributed to amortization of intangible assets recognized in purchase accounting related to the Company’s acquisition of
HSN. The increase in 2017 is primarily attributed to additions related to HSN’s warehouse automation initiative.
HSN recorded $19 million and $69 million of transaction related costs for the years ended December 31, 2018 and
2017, respectively. There were no transaction related costs for the year ended December 31, 2016. Of the $69 million of
transaction related costs recorded by the Company in 2017 for the two day period after the acquisition, $30 million related to
severance and bonus payments is included in the amount reported by HSN.
II-22
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zulily
zulily's operating results for the last three years were as follows:
December 31,
2018
Years ended
December 31,
2017
amounts in millions
December 31,
2016
Net revenue
Cost of sales
Operating expenses
SG&A expenses (excluding stock-based compensation
and transaction related costs)
Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Operating income (loss)
$
$
1,817
(1,346)
(50)
(313)
108
(17)
(186)
(95)
1,613
(1,195)
(47)
(280)
91
(18)
(202)
(129)
1,547
(1,108)
(47)
(280)
112
(19)
(245)
(152)
Net revenue consists primarily of sales of women's, children's and men's apparel, children's merchandise and other
product categories such as home, accessories and beauty products. zulily recognizes product sales at the time all revenue
recognition criteria has been met, which is generally at shipment. Net revenue represents the sales of these items plus
shipping and handling charges to customers and PLCC income, net of estimated refunds and returns, store credits, and
promotional discounts. Net revenue is primarily driven by zulily’s active customers, the frequency with which customers
purchase and average order value.
zulily's consolidated net revenue increased 12.6% and 4.3% for the years ended December 31, 2018 and
December 31, 2017, respectively, as compared to the corresponding prior years. The increase in net revenue for the year
ended December 31, 2018 was primarily attributed to a 14.4% increase in orders placed partially offset by a 1.5% decrease
in average order value year over year. The increase in orders placed was driven by a 13.8% increase in active customers. The
increase in net revenue for the year ended December 31, 2017 was primarily attributed to a 5.1% increase in orders placed
driven by a 15.9% increase in active customers year over year, coming from accelerated growth in the fourth quarter. Along
with the increase in orders placed, units per order also increased but was offset by lower average sales price per unit. 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.
zulily's cost of sales as a percentage of net revenue was 74.1%, 74.1% and 71.6% for the years ended December 31,
2018, 2017 and 2016, respectively. Cost of sales as a percentage of net revenue remained flat for the year ended December
31, 2018 as compared to the year ended December 31, 2017. The increase for the year ended December 31, 2017 was
primarily attributed to higher free shipping and promotional offers, as well as higher supply chain expenses resulting from an
increase in international shipping, a shift in product mix, ramping up of zulily’s Pennsylvania fulfillment center and growth
of its third-party fulfillment services and higher unit volume at a lower average sales price per unit.
zulily’s operating expenses are principally comprised of credit card processing fees and customer service
expenses. Operating expenses increased for the year ended December 31, 2018, as compared to the same period in the prior
year due to an increase in net sales. Operating expenses remained flat for the years ended December 31, 2017 and 2016.
zulily’s SG&A expenses include personnel related costs for general corporate functions, marketing and advertising
expenses and information technology. As a percentage of net revenue, SG&A decreased from 17.4% to 17.2% for the year
ended December 31, 2018 primarily due to leveraging in fixed costs. SG&A expenses remained flat, and as a percentage of
net revenue decreased from 18.1% to 17.4% for the year ended December 31, 2017, primarily due to a shift in marketing and
advertising spend to promotional offers.
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zulily’s stock-based compensation expense decreased slightly for the year ended December 31, 2018 as compared to
the corresponding period in the prior year primarily due to the transfer of certain senior leadership to QVC. zulily’s stock-
based compensation expense decreased slightly for the year ended December 31, 2017, compared to the corresponding period
in the prior year, also due to the transfer of certain senior leadership to QVC.
zulily’s depreciation and amortization expense decreased $16 million and decreased $43 million for the years ended
December 31, 2018 and 2017, respectively, as compared to the corresponding prior years. The decrease for the year ended
December 31, 2018, compared to the same period in the prior year, was primarily attributable to fully amortized intangible
assets recognized in purchase accounting. The decrease for the year ended December 31, 2017, compared to the same period
in the prior year, was primarily attributable to decelerating amortization as a result of certain intangible assets recognized in
purchase accounting becoming fully amortized.
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.
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, 2018, our debt is comprised of the following amounts:
QVC U.S. and QVC International
HSN
zulily
Corporate and other
Variable rate debt
Fixed rate debt
Principal Weighted avg Principal Weighted avg
amount interest rate
amount interest rate
$
$
$
$
810
—
135
—
dollar amounts in millions
3.9 % $ 4,331
7
— % $
3.9 % $
—
— % $ 2,308
4.5 %
1.8 %
— %
5.0 %
Qurate Retail 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, Qurate Retail 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, 2018 would have been impacted by approximately $4 million for every 1% change in foreign
currency exchange rates relative to the U.S. Dollar.
II-24
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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 Qurate Retail are filed under this Item, beginning on page II-31. 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 Exchange Act Rules 13a-15 and 15d-15, 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 not effective as of December 31, 2018 because of the material weaknesses in its internal control over
financial reporting that are described below in “Management’s Report on Internal Control Over Financial Reporting.”
However, giving full consideration to the material weaknesses, the Company’s management has concluded that the
consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the
Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S.
generally accepted accounting principles (“GAAP”). KPMG LLP has issued its report dated February 28, 2019, which
expressed an unqualified opinion on those consolidated financial statements.
Changes in Internal Control Over Financial Reporting
The Company acquired HSN in December 2017. As a result of the acquisition, the Company reviewed the internal
controls of the HSN business and made appropriate changes as deemed necessary. Except for the changes in internal control
at the HSN business and certain of the remediation activities described below, there was no change in the Company’s internal
control over financial reporting that occurred during the Company’s quarter ended December 31, 2018, that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
In response to the material weaknesses identified in “Management’s Report on Internal Control Over Financial
Reporting,” the Company has developed a plan with oversight from the Audit Committee of the Board of Directors to
remediate the material weaknesses. The remediation efforts include the following:
·
·
Improvement of the design and operation of control activities and procedures associated with user and
administrator access to the affected IT systems, including removing all inappropriate IT system access
associated with the information technology general control (“ITGC”) material weakness;
Improvement of change management and computer operation control activities that contributed to the ITGC
material weakness;
II-25
Table of Contents
·
·
·
Implement user activity monitoring for control activities contributing to the ITGC material weakness;
Deliver a training program to control owners addressing control operating protocols including ITGCs and
policies; and
Enhancement of the design and operation of control activities meant to validate the completeness and accuracy
of revenue recorded in the UK.
The Company believes the foregoing efforts will remediate the material weaknesses described in “Management’s
Report on Internal Control Over Financial Reporting.” Because the reliability of the internal control process requires
repeatable execution, the successful on-going remediation of the material weaknesses will require on-going review and
evidence of effectiveness prior to concluding that the controls are effective. Our remediation efforts are underway, and we
expect that the remediation of these material weaknesses will be completed prior to the end of 2019.
Additionally, the Company will continue to enhance the ITGC and UK revenue risk assessment process, evaluate
talent and address identified gaps, deliver training on internal control over financial reporting, and monitor information
system access and program changes to determine whether additional adjustments should be made to reduce or eliminate the
occurrence of access and program change management issues.
Management’s Report on Internal Control Over Financial Reporting
See page II-27 for Management's Report on Internal Control Over Financial Reporting.
See page II-28 for KPMG LLP’s attestation report regarding the effectiveness of our internal control over financial
reporting.
Item 9B. Other Information.
None.
II-26
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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company 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 Exchange Act. 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 GAAP. 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, 2018, using the criteria in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as of December 31,
2018, the Company’s internal control over financial reporting is not effective due to the material weaknesses described
below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. We have identified material weaknesses related to ITGCs as
well as certain business process controls designed to compensate for UK revenue system ITGC failures. Based on its
evaluation of internal control over financial reporting as described above, management concluded that it did not design and
maintain effective internal controls with respect to ITGCs. Specifically, the ITGCs were not designed and operating
effectively to ensure (i) that access to applications and data, and the ability to make program and job changes, were
adequately restricted to appropriate personnel and (ii) that the activities of individuals with access to modify data and make
program and job changes were appropriately monitored. Our business process controls (automated and manual) that are
dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. Further,
certain review controls intended to ensure revenue is recorded completely and accurately in the UK were not deemed
effective.
We believe these control deficiencies are due to:
·
·
·
·
Failure to select and apply appropriate ITGCs and UK revenue related controls with accountability
enforced through formal policies and procedures.
Insufficient training of IT personnel on the importance of ITGCs.
Insufficient staffing in the UK.
Inadequate risk assessment to fully understand the nature and extent of risk introduced into the production
environment and other control areas.
The control deficiencies did not result in any identified misstatements.
The Company's independent registered public accounting firm that audited the consolidated financial statements
included in this Annual Report on Form 10-K has issued an adverse report on the effectiveness of the Company's internal
control over financial reporting. This attestation report appears on page II-28 of this Annual Report on Form 10-K.
II-27
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Qurate Retail, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Qurate Retail, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material
weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained
effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated
February 28, 2019 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not
be prevented or detected on a timely basis. The following material weaknesses have been identified and included in
management’s assessment:
Information technology general controls (ITGCs) were not designed and operating effectively to ensure (i)
that access to applications and data, and the ability to make program and job changes, were adequately
restricted to appropriate personnel and (ii) that the activities of individuals with access to modify data and
make program and job changes were appropriately monitored. Our business process controls (automated
and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could
have been adversely impacted. Further, certain review controls intended to ensure revenue is recorded
completely and accurately in the UK were not deemed effective.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of
the 2018 consolidated financial statements, and this report does not affect our report on those consolidated financial
statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
II-28
Table of Contents
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Denver, Colorado
February 28, 2019
/s/ KPMG LLP
II-29
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Qurate Retail, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Qurate Retail, Inc. and subsidiaries (the Company) as of
December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows
for each of the years in the three‑year period ended December 31, 2018, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 28, 2019 expressed an adverse opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
revenue recognition in 2018 due to the adoption of Accounting Standard Codification Topic 606, Revenue from Contracts
with Customers.
Basis for Opinion
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 are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1995.
/s/ KPMG LLP
Denver, Colorado
February 28, 2019
II-30
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2018 and 2017
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables, net
Inventory, net
Other current assets
Total current assets
Investments in equity securities
Property and equipment, at cost
Accumulated depreciation
Intangible assets not subject to amortization (note 7):
Goodwill
Trademarks
Intangible assets subject to amortization, net (note 7)
Other assets, at cost, net of accumulated amortization
Assets of discontinued operations (note 5)
Total assets
II-31
2018
2017
amounts in millions
$
653
1,835
1,474
224
4,186
96
2,685
(1,363)
1,322
7,017
3,895
10,912
1,058
267
—
$ 17,841
903
1,726
1,411
125
4,165
2,363
2,564
(1,223)
1,341
7,082
3,929
11,011
1,248
359
3,635
24,122
(continued)
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2018 and 2017
Liabilities and Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of debt, including $990 million and $978 million measured at fair value (note 8)
Other current liabilities
Total current liabilities
Long-term debt, including $344 million and $868 million measured at fair value (note 8)
Deferred income tax liabilities (note 9)
Other liabilities
Liabilities of discontinued operations (note 5)
Total liabilities
Equity
Stockholders' equity (note 10):
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued
Series A Qurate Retail common stock, $.01 par value. Authorized 4,000,000,000 shares; issued
and outstanding 409,901,058 shares at December 31, 2018 and 449,335,940 shares at December
31, 2017
Series B Qurate Retail common stock, $.01 par value. Authorized 150,000,000 shares; issued
and outstanding 29,248,343 shares at December 31, 2018 and 29,203,895 shares at December
31, 2017
Series A Liberty Ventures common stock, $.01 par value. Authorized 400,000,000 shares at
December 31, 2017; issued and outstanding 81,686,659 shares at December 31, 2017
Series B Liberty Ventures common stock, $.01 par value. Authorized 15,000,000 shares at
December 31, 2017; issued and outstanding 4,455,311 shares at December 31, 2017
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 15)
Total liabilities and equity
2018
2017
amounts in millions
$
1,204
1,182
1,410
155
3,951
5,963
1,925
258
—
12,097
1,151
1,125
996
169
3,441
7,553
2,500
242
303
14,039
—
—
4
5
—
—
—
—
(55)
5,675
5,624
120
5,744
—
1
—
1,043
(133)
9,068
9,984
99
10,083
$ 17,841
24,122
See accompanying notes to consolidated financial statements.
II-32
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Statements Of Operations
Years ended December 31, 2018, 2017 and 2016
2018
2017
amounts in millions,
except per share amounts
2016
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 and transaction related costs
Impairment of intangible assets and long lived assets
Depreciation and amortization
Operating income
Other income (expense):
Interest expense
Share of earnings (losses) of affiliates, net
Realized and unrealized gains (losses) on financial instruments, net (note 6)
Gains (losses) on transactions, net
Tax sharing income (expense) with GCI Liberty, Inc.
Other, net
Earnings (loss) from continuing operations before income taxes
Income tax (expense) benefit (note 9)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of taxes (note 5)
Net earnings (loss)
Less net earnings (loss) attributable to the noncontrolling interests
Net earnings (loss) attributable to Qurate Retail, Inc. shareholders
Net earnings (loss) attributable to Qurate Retail, Inc. shareholders:
Qurate Retail common stock
Liberty Ventures common stock
Basic net earnings (loss) from continuing operations attributable to Qurate Retail, Inc. shareholders per
common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) from continuing operations attributable to Qurate Retail, Inc. shareholders per
common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
Basic net earnings (loss) attributable to Qurate Retail, Inc. shareholders per common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
Diluted net earnings (loss) attributable to Qurate Retail, Inc. shareholders per common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
14,070
10,404
10,647
9,209
970
1,897
33
637
12,746
1,324
(381)
(162)
76
1
32
(7)
(441)
883
(60)
823
141
964
48
916
674
242
916
1.46
1.17
1.45
1.16
1.46
2.81
1.45
2.78
$
$
$
$
$
$
$
$
$
$
6,789
659
1,188
—
725
9,361
1,043
(355)
(200)
145
410
—
7
7
1,050
985
2,035
452
2,487
46
2,441
1,208
1,233
2,441
2.71
14.34
2.70
14.17
2.71
14.34
2.70
14.17
6,908
707
1,190
—
874
9,679
968
(363)
(68)
414
9
—
131
123
1,091
(316)
775
499
1,274
39
1,235
473
762
1,235
0.99
5.54
0.98
5.49
0.99
5.69
0.98
5.64
See accompanying notes to consolidated financial statements.
II-33
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Statements Of Comprehensive Earnings (Loss)
Years ended December 31, 2018, 2017 and 2016
Net earnings (loss)
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments
Recognition of previously unrealized losses (gains) on debt, net
Share of other comprehensive earnings (loss) of equity affiliates
Comprehensive earnings (loss) attributable to debt credit risk adjustments (note 8)
Other
Other comprehensive earnings (loss)
Comprehensive earnings (loss)
Less comprehensive earnings (loss) attributable to the noncontrolling interests
Comprehensive earnings (loss) attributable to Qurate Retail, Inc. shareholders
2018
2017
2016
$
amounts in millions
2,487
964
1,274
(48)
16
(2)
38
—
4
968
50
918
134
—
3
—
—
137
2,624
50
2,574
(84)
—
(5)
—
4
(85)
1,189
40
1,149
$
See accompanying notes to consolidated financial statements.
II-34
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
Years ended December 31, 2018, 2017 and 2016
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)
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
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
Repurchases of Qurate Retail common stock
GCI Liberty Split-Off
Withholding taxes on net share settlements of stock-based compensation
Indemnification payment from GCI Liberty, Inc.
Distribution from Liberty Expedia Holdings
Other financing activities, net
Net cash provided (used) by financing activities
Effect of foreign currency exchange rates on cash, cash equivalents and restricted 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, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
2018
2017
2016
amounts in millions
(See note 3)
$
$
964
(141)
637
88
—
6
162
—
(76)
(1)
24
(185)
36
(27)
(214)
1,273
—
562
(100)
(275)
—
—
(140)
47
4,221
(4,395)
(988)
(475)
(29)
133
—
(41)
(1,574)
2
—
—
—
—
—
(252)
912
660
2,487
(452)
725
123
—
—
200
29
(145)
(410)
—
(1,157)
10
(145)
225
1,490
22
3
(159)
(204)
—
—
(53)
(391)
2,469
(2,631)
(765)
—
(70)
—
—
(39)
(1,036)
13
—
—
—
—
—
76
836
912
1,274
(499)
874
97
(92)
12
68
31
(414)
(9)
6
191
(115)
136
(117)
1,443
—
353
(86)
(233)
(264)
1,174
(36)
908
3,427
(4,498)
(799)
—
(16)
—
299
15
(1,572)
(20)
17
(2,400)
—
—
(2,383)
(1,624)
2,460
836
See accompanying notes to consolidated financial statements.
II-35
Accumulated
other
comprehensive
earnings
(loss),
net of taxes
Retained
Earnings
Noncontrolling
interest in
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Consolidated Statements Of Equity
Years ended December 31, 2018, 2017 and 2016
Stockholders' Equity
QVC
Group
Liberty
Ventures
Additional
Preferred
Stock
Series A Series B Series A Series B
paid-in
capital
Balance at January 1, 2016
Net earnings (loss)
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 Qurate Retail stock repurchases
Distribution to noncontrolling interest
Distribution of Liberty Expedia Holdings
Reclassification
Other
Balance at December 31, 2016
Net earnings (loss)
Other comprehensive earnings (loss)
Stock-based compensation
Series A Qurate Retail stock repurchases
Distribution to noncontrolling interest
Stock issued upon exercise of stock options
Withholding taxes on net share settlements of stock-based compensation
Issuance of Series A Qurate Retail stock in connection HSN acquisition (note 4)
Reclassification
Other
Balance at December 31, 2017
Net earnings (loss)
Other comprehensive earnings (loss)
Stock-based compensation
Series A Qurate Retail stock repurchases
Distribution to noncontrolling interest
Stock issued upon exercise of stock options
Withholding taxes on net share settlements of stock-based compensation
Cumulative effect of accounting change (note 2)
Reattribution of the Ventures Group to Qurate Retail
GCI Liberty Split-Off
Other
Reclassification
Balance at December 31, 2018
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
5
—
—
—
(1)
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
(1)
—
—
—
—
amounts in millions
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
370
—
—
—
89
(16)
24
(799)
—
—
341
(9)
—
—
—
123
(765)
—
5
(70)
1,343
405
2
1,043
—
—
88
(987)
—
5
(29)
—
1
(4,358)
(2)
4,239
—
(215)
—
(86)
—
—
—
—
—
—
35
—
—
(266)
—
133
—
—
—
—
—
—
—
—
(133)
—
2
—
—
—
—
—
76
—
—
—
—
(55)
6,626
1,235
—
5
—
—
—
—
—
(493)
(341)
—
7,032
2,441
—
—
—
—
—
—
—
(405)
—
9,068
916
—
—
—
—
—
—
(70)
—
—
—
(4,239)
5,675
See accompanying notes to consolidated financial statements.
II-36
equity of
subsidiaries
Total
equity
88
39
1
—
—
—
—
—
(39)
—
—
—
89
46
4
—
—
(40)
—
—
—
—
—
99
48
2
—
—
(40)
—
—
—
—
11
—
—
120
6,875
1,274
(85)
5
89
(16)
24
(799)
(39)
(458)
—
(9)
6,861
2,487
137
123
(765)
(40)
5
(70)
1,343
—
2
10,083
964
4
88
(988)
(40)
5
(29)
6
—
(4,347)
(2)
—
5,744
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of Qurate Retail, Inc. (formerly named
Liberty Interactive Corporation prior to the Transactions (defined and described below), or “Liberty”) and its controlled
subsidiaries (collectively, "Qurate Retail," the "Company," “we,” “us,” and “our”) unless the context otherwise requires). All
significant intercompany accounts and transactions have been eliminated in consolidation.
Qurate Retail, 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.
On July 22, 2016, Qurate Retail completed the spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned
subsidiary CommerceHub, Inc. (“CommerceHub”) to holders of its Liberty Ventures common stock. The CommerceHub
Spin-Off was accomplished by the distribution by Qurate Retail of a dividend of (i) 0.1 of a share of CommerceHub’s Series
A common stock for each outstanding share of Qurate Retail’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 Qurate Retail’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 Qurate Retail that it agreed with the
nontaxable characterization of the transaction. Qurate Retail received an Issue Resolution Agreement from the Internal
Revenue Service (“IRS”) documenting this conclusion. CommerceHub is included in Qurate Retail’s Corporate and other
segment through July 22, 2016 and is not presented as a discontinued operation as the CommerceHub Spin-Off did not have a
major effect on Qurate Retail’s operations and financial results.
On November 4, 2016, Qurate Retail completed the split-off (the “Expedia Holdings Split-Off”) of its former
wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”) to holders of its Liberty Ventures common
stock. At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Qurate
Retail’s former interest in Expedia Group, Inc., formerly known as Expedia, Inc. (“Expedia”) and Qurate Retail’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 Qurate Retail on November 4, 2016. The
Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Qurate Retail’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
Qurate Retail’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 Qurate Retail
that it agreed with the nontaxable characterization of the transaction. Qurate Retail received an Issue Resolution Agreement
from the IRS documenting this conclusion.
Qurate Retail viewed Expedia and Bodybuilding as separate components and evaluated them separately for
discontinued operations presentation. Based on a quantitative analysis, the split-off of Qurate Retail’s interest in Expedia had
a major effect on Qurate Retail’s operations, primarily due to one-time gains on transactions recognized by Expedia in
2015. Accordingly, the consolidated financial statements of Qurate Retail have been prepared to reflect Qurate Retail’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 Qurate Retail’s historical results nor is it expected to have a major effect on Qurate Retail’s
II-37
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
future operations. Accordingly, Bodybuilding is not presented as a discontinued operation in the consolidated financial
statements of Qurate Retail. 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, Qurate Retail
reimbursed Expedia, a related party prior to the Expedia Holdings Split-Off, $4 million during October 2016, thereby settling
the reimbursement agreement.
Prior to the Transactions (described and defined below), the Company utilized tracking stocks in its capital structure. A
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. Qurate Retail had two
tracking stocks—QVC Group common stock and Liberty Ventures common stock, which were intended to track and reflect
the economic performance of the businesses, assets and liabilities attributed to the QVC Group and the Ventures Group,
respectively. The QVC Group was comprised of the Company’s wholly-owned subsidiaries QVC, zulily, HSN and
Cornerstone, among other assets and liabilities. The Ventures Group was comprised of businesses not included in the QVC
Group including Evite, Inc. (“Evite”) and our interests in Liberty Broadband Corporation (“Liberty Broadband”),
LendingTree, Inc. (“LendingTree”), investments in Charter Communications, Inc. (“Charter”) and ILG, Inc. (“ILG”), among
other assets and liabilities. The Company’s results are attributed to the QVC Group and the Ventures Group through March 9,
2018.
On December 29, 2017, Qurate Retail acquired the approximately 62% of HSN, Inc. it did not already own in an all-
stock transaction making HSN, Inc. a wholly-owned subsidiary. HSN, Inc. stockholders (other than Qurate Retail) received
fixed consideration of 1.65 shares of Series A QVC Group common stock (“QVCA”) for each share of HSN, Inc. common
stock. Qurate Retail issued 53.6 million shares QVCA common stock to HSN, Inc. stockholders. On December 31, 2018,
Qurate Retail transferred our 100% ownership interest in HSN to QVC, Inc. through a transaction among entities under
common control. References throughout this annual report to “QVC” refer to QVC, Inc., which includes HSN, QVC U.S.
and QVC International. Cornerstone remains a subsidiary of Qurate Retail.
the “Reorganization Agreement,” and
On March 9, 2018, Qurate Retail completed the transactions contemplated by the Agreement and Plan of
Reorganization (as amended,
the
“Transactions”) among General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a
Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail (“LI LLC”). Pursuant to the
Reorganization Agreement, GCI amended and restated its articles of incorporation (which resulted in GCI being renamed
GCI Liberty, Inc. (“GCI Liberty”)) and effected a reclassification and auto conversion of its common stock. After market
close on March 8, 2018, Qurate Retail’s board of directors approved the reattribution of certain assets and liabilities from
Qurate Retail’s Ventures Group to its QVC Group, which was effective immediately. The reattributed assets and liabilities
included cash, Qurate Retail’s interest in ILG, certain green energy investments, LI LLC’s exchangeable debentures, and
certain tax benefits.
transactions contemplated
thereby,
the
Following these events, Qurate Retail acquired GCI Liberty through a reorganization in which certain Qurate Retail
interests, assets and liabilities attributed to the Ventures Group were contributed (the “contribution”) to GCI Liberty in
exchange for a controlling interest in GCI Liberty. Qurate Retail and LI LLC contributed to GCI Liberty their entire equity
interest in Liberty Broadband, Charter, and LendingTree, the Evite operating business and other assets and liabilities
attributed to Qurate Retail’s Venture Group (following the reattribution), in exchange for (a) the issuance to LI LLC of a
number of shares of GCI Liberty Class A Common Stock and a number of shares of GCI Liberty Class B Common Stock
equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures
common stock on March 9, 2018, respectively, (b) cash and (c) the assumption of certain liabilities by GCI Liberty.
II-38
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Following the contribution, Qurate Retail effected a tax-free separation of its controlling interest in the combined
company (the “GCI Liberty Split-Off”), GCI Liberty, to the holders of Liberty Ventures common stock in full redemption of
all outstanding shares of such stock, in which each outstanding share of Series A Liberty Ventures common stock was
redeemed for one share of GCI Liberty Class A common stock and each outstanding share of Series B Liberty Ventures
common stock was redeemed for one share of GCI Liberty Class B common stock. Simultaneous with the closing of the
Transactions, QVC Group common stock became the only outstanding common stock of Qurate Retail, and thus QVC Group
common stock ceased to function as a tracking stock. On April 9, 2018, Liberty Interactive Corporation was renamed Qurate
Retail, Inc. On May 23, 2018, Qurate Retail amended its charter to eliminate the tracking stock capitalization structure and
reclassify each share of QVC Group common stock into one share of the corresponding series of new common stock of
Qurate Retail. Throughout this annual report, we refer to our Series A and Series B common stock as “Qurate Retail common
stock” and “QVC Group common stock.” In July 2018, the Internal Revenue Service (“IRS”) completed its review of the
GCI Liberty Split-Off and informed Qurate Retail that it agreed with the nontaxable characterization of the transactions.
Qurate Retail received an Issue Resolution Agreement from the IRS documenting this conclusion.
On October 17, 2018, Qurate Retail announced a series of initiatives designed to better position its HSN and QVC U.S.
businesses (“QRG Initiatives”). As part of the QRG Initiatives, QVC will close its fulfillment center in Lancaster,
Pennsylvania and has entered into an agreement to lease a new fulfillment center in Bethlehem, Pennsylvania, commencing
in 2019 (see note 15). Qurate Retail recorded transaction related costs of $41 million during the year ended December 31,
2018 related to the QRG Initiatives, which primarily related to severance costs.
Qurate Retail and Liberty Media Corporation (“LMC”) (for accounting purposes a related party of Qurate Retail)
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 (the “Services Agreement”), a facilities sharing
agreement (the “Facilities Sharing Agreement”) and a tax sharing agreement (the “Tax Sharing Agreement”). Qurate Retail
and GCI Liberty (for accounting purposes a related party of Qurate Retail) entered into a tax sharing agreement.
The Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between
Qurate Retail and LMC and other agreements related to tax matters. Qurate Retail 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 Qurate Retail's financial
position. Pursuant to the Services Agreement, LMC will provide Qurate Retail with general and administrative services
including legal, tax, accounting, treasury and investor relations support. Qurate Retail will reimburse LMC for direct, out-of-
pocket expenses incurred by LMC in providing these services and for Qurate Retail's allocable portion of costs associated
with any shared services or personnel based on an estimated percentage of time spent providing services to Qurate Retail.
Under the Facilities Sharing Agreement, Qurate Retail will share office space with LMC and related amenities at LMC's
corporate headquarters. Under these various agreements approximately $8 million, $11 million and $10 million of these
allocated expenses were reimbursed from Qurate Retail to LMC for the years ended December 31, 2018, 2017 and 2016,
respectively. Qurate Retail has a tax sharing payable to GCI Liberty in the amount of approximately $103 million as of
December 31, 2018, the majority of which is included in Other liabilities in the consolidated balances sheets, with the
exception of $37 million, which is included in Other current liabilities on the consolidated balance sheets.
II-39
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(2) 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 retail sales.
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
$
$
$
92
99
87
3
123
73 (1)
109 (1)
(101)
(79)
(96)
117
92
99
2018
2017
2016
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 $151 million and $93
million for the years ended December 31, 2018 and 2017, respectively.
Investments
All marketable equity and debt securities held by the Company are carried at fair value, generally based on quoted
market prices and changes in the fair value of such securities are reported in realized and unrealized gain (losses) on financial
instruments in the accompanying consolidated statements of operations. The Company elected the measurement alternative
(defined as the cost of the security, adjusted for changes in fair value when there are observable prices, less impairments) for
its equity securities without readily determinable fair values. The total value of equity securities for which the Company has
elected the fair value option aggregated zero and $2,275 million as of December 31, 2018 and 2017, respectively.
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
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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.
The Company performs a qualitative assessment each reporting period for its equity securities without readily
determinable fair values to identify whether an equity security could be impaired. When our qualitative assessment indicates
that an impairment could exist, we estimate the fair value of the investment and to the extent the fair value is less than the
carrying value, we record the difference as an impairment in the consolidated statements of operations.
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.
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,
2018
2017
amounts in millions
$
128
1,194
1,302
61
2,685
$
108
1,165
1,240
51
2,564
Property and equipment, including significant improvements, is stated at amortized cost, less impairment losses, if
any. Depreciation is computed using the straight-line method using estimated useful lives of 2 to 15 years for support
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
equipment and 8 to 20 years for buildings and improvements. Depreciation expense for the years ended December 31, 2018,
2017 and 2016 was $211 million, $176 million and $171 million, respectively.
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.
In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill
impairment. Under the new guidance, an entity no longer performs a hypothetical purchase price allocation to measure
goodwill impairment. Instead, a goodwill impairment is measured using the difference between the carrying value and the
fair value of the reporting unit. The Company early adopted this guidance during the fourth quarter of 2017.
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 quantitative
impairment test.
The quantitative goodwill impairment test 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 Qurate Retail'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.
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. The accounting guidance also
allows entities the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and
proceed directly to the quantitative impairment test. The entity may resume performing the qualitative assessment in any
subsequent period. 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.
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
such carrying amounts may not be recoverable. If the carrying amount of the asset group is greater than the expected
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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
In May 2014, the FASB issued new accounting guidance on revenue from contracts with customers (“ASU 2014-
09” or “ASC 606”). 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. On January 1, 2018, the Company adopted the revenue accounting standard using the modified
retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as an
adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to
be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new
revenue standard to have a material impact to our net income on an ongoing basis. Refer to the table below for the adoption
of this guidance.
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Assets:
Inventory, net
Other current assets
Liabilities:
Other current liabilities
Deferred income tax liabilities
Equity:
Retained earnings
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Balance at
December 31,
2017
Adjustments
Due to ASU
2014-09
in millions
Balance at
January 1,
2018
$
$
$
$
$
1,411
125
169
2,500
9,068
(27)
(11)
(46)
2
6
1,384
114
123
2,502
9,074
In accordance with the new revenue standard requirements, the following table illustrates the impact on our reported
results in the consolidated statements of operations assuming we did not adopt the new revenue standard on January 1,
2018. Other than as previously discussed, upon the adoption of the new revenue standard on January 1, 2018, there were no
additional material adjustments to our consolidated balance sheet as of December 31, 2018.
As reported
Year ended
December 31, 2018
Impact of ASC 606
in millions
Balance without
adoption of
ASC 606
Net revenue
Cost of retail sales
Selling, general and administrative expenses, including
stock-based compensation and transaction related costs
Operating expense
Income tax (expense) benefit
Net income
$
$
$
$
$
$
14,070
9,209
1,897
970
(60)
916
(154)
(13)
(126)
(2)
2
(11)
13,916
9,196
1,771
968
(58)
905
The effect of changes of adoption is primarily due to changes in the timing of revenue recognition and the
classification of credit card income for the QVC-branded credit card and the HSN-branded credit card. For the year ended
December 31, 2018, revenue is recognized at the time of shipment to our customers consistent with when control passes and
credit card income is recognized in revenue. For the year ended December 31, 2017, revenue was recognized at the time of
delivery to the customers and deferred revenue, as well as inventory and related expenses, were recorded to account for the
shipments in-transit. In addition, credit card income was recognized as an offset to selling, general and administrative
expenses. The Company also recognized a separate $121 million asset (included in other current assets) relating to the
expected return of inventory and a $266 million liability (included in other current liabilities) relating to its sales return
reserve at December 31, 2018, instead of the net presentation that was used at December 31, 2017.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Disaggregated revenue by segment and product category consisted of the following:
Home
Apparel
Beauty
Accessories
Electronics
Jewelry
Other revenue
Total Revenue
QVC U.S.
QVC Int'l
HSN
zulily
Corp and other
Total
Year ended
December 31, 2018
$
$
2,265
1,140
1,040
772
674
324
134
6,349
1,023
453
640
273
119
213
17
2,738
in millions
910
183
286
161
455
149
58
2,202
511
684
50
472
18
53
29
1,817
791
180
—
—
—
—
(7)
964
5,500
2,640
2,016
1,678
1,266
739
231
14,070
Consumer Product Revenue and Other Revenue. Qurate Retail's revenue includes sales of consumer products in the
following categories: home, apparel, beauty, accessories, electronics and jewelry, which are primarily sold through live
merchandise-focused televised shopping programs and via our websites and other interactive media, including catalogs.
Other revenue consists primarily of income generated from our company branded credit cards in which a large
consumer financial services company provides revolving credit directly to the Company’s customers for the sole purpose of
purchasing merchandise or services with these cards. In return, the Company receives a portion of the net economics of the
credit card program.
Revenue Recognition. Revenue is recognized when obligations with our customers are satisfied; generally this occurs at
the time of shipment to our customers consistent with when control of the shipped product passes. The recognized revenue
reflects the consideration we expect to receive in exchange for transferring goods, net of allowances for returns.
The Company recognizes revenue related to its company branded credit cards over time as the credit cards are used by
Qurate Retail's customers.
Sales, value add, use and other taxes we collect concurrent with revenue-producing activities are excluded from
revenue.
The Company has elected to treat shipping and handling activities that occur after the customer obtains control of the
goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company accrues the related shipping
costs and recognizes revenue upon delivery of goods to the shipping carrier. In electing this accounting policy, all shipping
and handling activities are treated as fulfillment costs.
The Company generally has payment terms with its customers of one year or less and has elected the practical expedient
applicable to such contracts not to consider the time value of money.
Significant Judgments. Qurate Retail’s products are generally sold with a right of return and we may provide other
credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to
recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
additional information becomes available. The Company has determined that it is the principal in vendor arrangements as the
Company can establish control over the goods prior to shipment. Accordingly, the Company records revenue for these
arrangements on a gross basis.
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, 2018, 2017 and 2016 aggregated $2,434 million, $1,861
million and $1,865 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
2018 (1) $
2017 $
2016 $
267
98
106
2,281
1,027
1,051
Deductions
in millions
(2,282)
(1,023)
(1,060)
Acquisition
of HSN
Balance end
of year
-
35
-
266
137
98
(1) Amounts in 2018 include the impact of adoption of ASC 606.
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.
Stock-Based Compensation
As more fully described in note 12, the Company has granted to its directors, employees and employees of its
subsidiaries options, restricted stock and stock appreciation rights relating to shares of Qurate Retail and/or Liberty Ventures
common stock ("Qurate Retail 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 (“GDFV”) 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 $88 million, $123 million and $97 million for the years ended December 31, 2018,
2017 and 2016, 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 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
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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 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.
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 guidance amending the accounting for income taxes associated with intra-
entity transfers of assets other than inventory. This accounting update, which is part of the FASB's simplification initiative, is
intended to reduce diversity in practice and the complexity of tax accounting, particularly for those transfers involving
intellectual property. This new guidance requires an entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs. The new standard is effective for annual periods, and
interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company
adopted this guidance during the first quarter of 2018, and there was no significant effect of the standard on its consolidated
financial statements.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Earnings (Loss) Attributable to Qurate Retail Stockholders and Earnings (Loss) Per Common Share
Net earnings (loss) attributable to Qurate Retail stockholders is comprised of the following (amounts in millions):
Qurate Retail
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,
2018
2017
2016
$
$
$
$
674
NA
101
141
1,208
NA
781
452
473
NA
263
499
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 (“WASO”) 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 Qurate Retail Common Stock
EPS for all periods through December 31, 2018, is based on the following weighted average shares
outstanding. Excluded from diluted EPS for the years ended December 31, 2018, 2017 and 2016 are approximately 25
million, 20 million and 13 million potential common shares, respectively, because their inclusion would be antidilutive.
Basic WASO
Potentially dilutive shares
Diluted WASO
Years ended December 31,
2018
2017
2016
number of shares in millions
462
3
465
445
3
448
476
5
481
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Series A and Series B Liberty Ventures Common Stock
EPS for all periods through December 31, 2018, is based on the following weighted average shares
outstanding. Excluded from diluted EPS for the years ended December 31, 2018, 2017, and 2016 are less than a million
potential common shares because their inclusion would be antidilutive.
Basic WASO
Potentially dilutive shares
Diluted WASO
Years ended December 31,
2018 (1)
2017
2016
number of shares in millions
86
1
87
86
1
87
134
1
135
(1) All of the outstanding shares of Liberty Ventures Series A and B common stock were redeemed for GCI Liberty
Series A and B common stock as a result of the GCI Liberty Split-Off on March 9, 2018.
Reclasses and adjustments
Certain prior period amounts have been reclassified for comparability with the current year presentation.
As a result of repurchases of Series A Qurate Retail common stock, the Company’s additional paid-in capital
balance was in a deficit position in certain quarterly periods during the year ended December 31, 2018. In order to maintain a
zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ($4,239 million) at December
31, 2018 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. Qurate Retail
considers (i) recurring and non-recurring fair value measurements, (ii) accounting for income taxes and (iii) estimates of
retail-related adjustments and allowances to be its most significant estimates.
New Accounting Pronouncements Not Yet Adopted
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the
FASB issued new guidance which addresses the effect of the change in the U.S. federal corporate tax rate due to the
enactment of the Tax Cuts and Jobs Act (the “Tax Act”) on items within accumulated other comprehensive income (loss).
The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption
permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its
consolidated financial statements.
Leases. 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 is effective for the Company for fiscal
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
years and interim periods beginning after December 15, 2018, with early adoption permitted. We plan to adopt this guidance
on January 1, 2019 utilizing the modified retrospective transition approach and will not restate comparative periods. We will
elect the package of practical expedients permitted under the transition guidance, which allows us to carryforward our
historical lease classification, our determination regarding whether a contract contains a lease and any initial indirect costs
that had existed prior to the adoption of this new standard. The Company will also elect to combine both lease and non-lease
components and elect to expense all short-term leases with a term of less than 12 months and not record a related right of use
asset and lease liability on the consolidated balance sheet. The Company expects that the discounted amount of operating
leases in note 15 to the accompanying consolidated financial statements will be recognized as right-of-use assets and
operating lease liabilities on the consolidated balance sheet upon adoption of the new standard. The Company does not
expect the adoption of the new standard to have a material impact on the remaining consolidated financial statements.
Internal-Use Software. In August 2018, the FASB issued new guidance which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. The guidance will be effective for the Company in
the first quarter of 2020 with early adoption permitted. The Company is currently assessing the impact that adopting this new
accounting standard will have on its consolidated financial statements.
(3) 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 (received) for acquisitions, net of cash acquired
Cash paid for interest
Cash paid for income taxes
II-50
Years ended December 31,
2018
2017
2016
amounts in millions
$
$
$
$
(11)
956
— 1,577
651
(4)
(977)
10
(281)
5
— (1,948)
(22)
—
—
7
(40)
—
33
—
—
362
343
354
226
158
204
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
In November 2016, the FASB issued new accounting guidance which requires entities to show the changes in the
total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The Company
adopted this guidance during the first quarter of 2018 and has reclassified prior period balances in cash and cash equivalents
within the consolidated statements of cash flows in order to conform with current period presentation. The following table
reconciles cash, cash equivalents and restricted cash reported in our consolidated balance sheets to the total amount presented
in our consolidated statements of cash flows:
Cash and cash equivalents
Restricted cash included in other current assets
Total cash, cash equivalents and restricted cash in the consolidated
statement of cash flows
$
$
653
7
660
903
9
912
December 31,
2018
December 31,
2017
in millions
0(4) Acquisitions
On December 29, 2017, Qurate Retail acquired the approximately 62% of HSN it did not already own in an all-stock
transaction making HSN a wholly-owned subsidiary, attributed to the QVC Group. HSN shareholders (other than Qurate
Retail) received fixed consideration of 1.65 shares of Series A QVC Group common stock (“QVCA”) for each share of HSN
common stock. Qurate Retail issued 53.6 million shares QVCA common stock to HSN shareholders. In conjunction with
application of acquisition accounting, we recorded a full step up in basis of HSN which resulted in a $409 million gain. The
fair market value of our ownership interest previously held in HSN ($605 million) was determined based on the trading price
of QVCA common stock on the date of the acquisition (Level 1) less a control premium. The market value of the shares of
QVCA common stock issued to HSN shareholders ($1.3 billion) was determined based on the trading price of QVCA
common stock on the date of the acquisition. The total equity value of the transaction was $1.9 billion. With the exception of
$43 million of severance-related costs incurred on December 30, 2017, HSN’s results of operations are not included in our
consolidated operating results for the year ended December 31, 2017, as the final two days of the period were considered
immaterial.
The purchase price allocation for HSN 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
Debt
Other liabilities assumed
Deferred tax liabilities
$
$
22
220
772
936
676
598
(519)
(467)
(13)
(277)
1,948
Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and
represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
separate recognition, including assembled workforce, value associated with future customers, continued innovation and
noncontractual relationships. Intangible assets acquired during 2017 were comprised of customer relationships of $421
million with a weighted average life of approximately 9 years, capitalized software of $16 million with a weighted average
life of approximately 1 year, and technology of $161 million with a weighted average life of approximately 7 years. None of
the acquired goodwill is expected to be deductible for tax purposes. Subsequent to December 31, 2017, the preliminary
purchase price allocation was adjusted, resulting in an increase of $6 million to property and equipment, $20 million to other
assets, $4 million to accounts payable and accrued liabilities, $7 million to debt, $1 million to other liabilities assumed, and
corresponding decreases of $14 million to goodwill, $4 million to deferred tax liabilities and $4 million to intangible assets
subject to amortization. As of December 31, 2018, the valuation related to the acquisition of HSN and the acquisition price
allocation are final.
Included in net earnings (loss) from continuing operations for the year ended December 31, 2017 is $43 million
related to HSN’s operations since the date of acquisition, which is primarily related to severance cost post acquisition. Of the
$43 million, $38 million related to HSN ($8 million of which related to stock-based compensation expense and is included in
Selling, general and administrative, including stock-based compensation expense in the consolidated statements of
operations) and $5 million related to Cornerstone.
The pro forma revenue and net earnings from continuing operations of Qurate Retail, prepared utilizing the
historical financial statements of HSN, giving effect to purchase accounting related adjustments made at the time of
acquisition, as if the transaction discussed above occurred on January 1, 2016, are as follows:
Revenue
Net earnings (loss) from continuing operations
$
$
Years Ended December 31,
2017
2016
amounts in millions
(unaudited)
13,791
2,200
14,220
1,258
The pro forma information is not representative of Qurate Retail’s future financial position, future results of
operations or future cash flows nor does it reflect what Qurate Retail’s financial position, results of operations or cash flows
would have been as if the transaction had happened previously and Qurate Retail controlled HSN during the periods
presented. The pro forma information includes a nonrecurring adjustment for transaction costs incurred as a result of the
acquisition.
(5) Disposals
Disposals - Presented as Discontinued Operations
On November 4, 2016, Qurate Retail completed the Expedia Holdings Split-Off. Expedia Holdings is comprised of,
among other things, Qurate Retail’s former interest in Expedia and Qurate Retail’s former wholly-owned subsidiary
Bodybuilding. Qurate Retail views Expedia and Bodybuilding as separate components and evaluated them separately for
discontinued operations presentation. Based on a quantitative analysis, the split-off of Qurate Retail’s interest in Expedia had
a major effect on Qurate Retail’s operations, primarily due to prior year one-time gains on transactions recognized by
Expedia. Accordingly, the consolidated financial statements of Qurate Retail have been prepared to reflect Qurate Retail’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 Qurate Retail’s historical results nor is it expected to have a major effect on Qurate Retail’s
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
future operations. Accordingly, Bodybuilding is not presented as a discontinued operation in the consolidated financial
statements of Qurate Retail. See “Disposals – Not Presented as Discontinued Operations” below for additional information
regarding Bodybuilding.
On March 9, 2018, Qurate Retail completed the GCI Liberty Split-Off. At the time of the GCI Liberty Split-Off,
GCI Liberty was comprised of, among other things, GCI Liberty’s legacy business, Qurate Retail’s former interest in Liberty
Broadband, Charter and LendingTree, and Qurate Retail’s former wholly-owned subsidiary Evite. Qurate Retail viewed
Liberty Broadband, LendingTree and Evite as separate components and evaluated them separately for discontinued
operations presentation. As Qurate Retail’s former interest in Charter was accounted for as an available for sale investment it
did not meet the definition of a component for discontinued operation presentation. The disposition of Liberty Broadband
was considered significant to the overall financial statements. Accordingly, the accompanying consolidated financial
statements of Qurate Retail have been prepared to reflect Qurate Retail’s interest in Liberty Broadband as a discontinued
operation for the years ended December 31, 2018, 2017 and 2016. The disposition of LendingTree and Evite as part of the
GCI Liberty Split-Off does not have a major effect on Qurate Retail’s historical or future results. Accordingly, LendingTree
and Evite are not presented as discontinued operations in the accompanying consolidated financial statements of Qurate
Retail. LendingTree and Evite are included in the Corporate and other segment through March 8, 2018. See “Disposals – Not
Presented as Discontinued Operations” below for additional information regarding Evite and LendingTree.
Certain financial information for the Company’s investment in Liberty Broadband, which is included in the
discontinued operations line items of the consolidated Qurate Retail balance sheets as of December 31, 2017, is as follows
(amounts in millions):
Investment in Liberty Broadband measured at fair value
Deferred income tax liabilities
December 31,
2017
3,635
303
$
$
Certain financial information for Qurate Retail’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
Year ended December 31,
2016
$
$
24
(4)
Certain financial information for Qurate Retail’s investment in Liberty Broadband, 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,
2018
2017
2016
$
$
187
(46)
473
(21)
761
(282)
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The combined impact from discontinued operations, discussed above, is as follows:
Basic earnings (loss) from discontinued operations attributable to
Qurate Retail shareholders per common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
Diluted earnings (loss) from discontinued operations attributable to
Qurate Retail shareholders per common share (note 2):
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
$
$
$
Years ended December 31,
2018
2017
2016
NA
1.64
NA
1.62
NA
5.26
NA
5.20
NA
3.73
NA
3.69
Prior to the GCI Liberty Split-Off, Qurate Retail accounted for the investment in Liberty Broadband at its fair value.
Accordingly, Liberty Broadband’s assets, liabilities and results of operations were not included in Qurate Retail’s
consolidated financial statements. Summary financial information for Liberty Broadband for the periods prior to the GCI
Liberty Split-Off is as follows:
Current assets
Total assets
Current liabilities
Total liabilities
Equity
Operating income
Share of earnings (loss) of affiliate
Gain (loss) on dilution of investment in affiliate
Income tax (expense) benefit
Net earnings (loss) attributable to Liberty Broadband shareholders
Disposals – Not Presented as Discontinued Operations
December 31,
2017
amounts in millions
$
$
$
$
$
84
11,932
11
1,445
10,487
Year ended December 31,
2016
2017
amounts in millions
$
$
$
$
$
(25)
2,509
(18)
(417)
2,034
(21)
642
771
(558)
917
On July 22, 2016, Qurate Retail 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 have a major effect on Qurate Retail’s operations and financial results. Included in Total revenue, net in the
accompanying consolidated statements of operations is $51 million for the year ended December 31, 2016, related to
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Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
CommerceHub. Included in Net earnings (loss) in the accompanying consolidated statements of operations are earnings of
$5 million for the year ended December 31, 2016, related to CommerceHub.
As discussed above, on November 4, 2016, Qurate Retail completed the Expedia Holdings Split-Off. Although
Qurate Retail’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 Qurate Retail. Bodybuilding is included in the Corporate
and other segment through November 4, 2016. Included in Total revenue, net in the accompanying consolidated statements of
operations is $355 million for the year ended December 31, 2016, related to Bodybuilding. Included in Net earnings (loss) in
the accompanying consolidated statements of operations are earnings of $6 million for the years ended December 31, 2016,
related to Bodybuilding.
As discussed above, on March 9, 2018, Qurate Retail completed the GCI Liberty Split-Off. Although Liberty
Broadband has been presented as a discontinued operation, Evite and LendingTree are not presented as discontinued
operations. Included in revenue in the accompanying consolidated statements of operations is $3 million, $24 million and
$23 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to Evite. Included in net earnings
(loss) in the accompanying consolidated statements of operations are losses of $2 million, $3 million and $1 million, for the
years ended December 31, 2018, 2017 and 2016, respectively, related to Evite. Included in total assets in the accompanying
consolidated balance sheets as of December 31, 2017 is $43 million related to Evite. Included in net earnings (loss) in the
accompanying consolidated statements of operations are earnings of less than a million, $6 million and $31 million for the
years ended December 31, 2018, 2017, and 2016, respectively, related to LendingTree. Included in total assets in the
accompanying consolidated balance sheets as of December 31, 2017 is $115 million related to LendingTree.
(6) 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.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The Company's assets and liabilities measured at fair value are as follows:
Description
Cash equivalents
Equity securities
Indemnification asset (1)
Debt
Total
310
$
—
$
$
79
$ 1,334
December 31, 2018
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Total
December 31, 2017
Quoted prices
in active
markets
for identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
310
—
—
—
amounts in millions
—
655
— 2,275
—
79
1,334 1,846
655
2,275
—
—
—
—
—
1,846
(1) The indemnification asset is included in Other assets on the consolidated balance sheets as of December 31,
2018.
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.
Pursuant to an indemnification agreement, GCI Liberty has agreed to indemnify LI LLC for certain payments made to a
holder of LI LLC’s 1.75% Exchangeable Debentures due 2046 (the “1.75% Exchangeable Debentures”). An indemnity asset
in the amount of $281 million was recorded upon completion of the GCI Liberty Split-Off. In June 2018, Qurate Retail
repurchased 417,759 of the 1.75% Exchangeable Debentures for approximately $457 million, including accrued interest, and
GCI Liberty made a payment under the indemnification agreement to Qurate Retail in the amount of $133 million.
The remaining indemnification asset due to LI LLC pertains to the holder’s ability to exercise its exchange right
according to the terms of the 1.75% Exchangeable Debentures on or before October 5, 2023. Such amount will equal the
difference between the exchange value and par value of the 1.75% Exchangeable Debentures at the time the exchange
occurs. The indemnification asset recorded in the consolidated balance sheets as of December 31, 2018 represents the fair
value of the estimated exchange feature included in the 1.75% Exchangeable Debentures primarily based on market
observable inputs (Level 2). As of December 31, 2018, a holder of the 1.75% Exchangeable Debentures does not have the
ability to exchange and, accordingly, such indemnification asset is included as a long-term asset in our consolidated balance
sheets. Additionally, as of December 31, 2018, 332,241 of the 1.75% Exchangeable Debentures remain outstanding.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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:
Equity securities
Exchangeable senior debentures
Indemnification asset
Other financial instruments
(7) Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill are as follows:
Years ended December 31,
2018 2017 2016
amounts in millions
$ 155
(3)
(70)
(6)
76
$
434
(193)
—
(96)
145
723
(308)
—
(1)
414
QVC U.S.
QVC
International
zulily
HSN
Corporate
and Other Total
Balance at January 1, 2017
$
Acquisition (1)
Foreign currency translation adjustments
Balance at December 31, 2017
Foreign currency translation adjustments
Disposition (2)
Other (3)
Balance at December 31, 2018
$
4,305
—
—
4,305
—
—
—
4,305
amounts in millions
917
—
—
917
—
—
—
917
805
—
80
885
(25)
—
—
860
—
933
—
933
—
—
(10)
923
25
17
—
42
—
(26)
(4)
12
6,052
950
80
7,082
(25)
(26)
(14)
7,017
(1) As discussed in note 4, on December 29, 2017, the Company acquired the approximately 62% of HSN it did not already
own in an all-stock transaction making HSN a wholly-owned subsidiary. The acquisition resulted in an increase to
goodwill of $950 million.
(2) As a result of the GCI Liberty Split-Off on March 9, 2018, the Company disposed of its wholly-owned subsidiary Evite,
resulting in a $26 million decrease to goodwill.
(3) As discussed in note 4, the preliminary purchase price allocation for the HSN acquisition was adjusted, resulting in a
decrease to goodwill.
Goodwill recognized from acquisitions primarily relates to assembled workforces, website community and other
intangible assets that do not qualify for separate recognition.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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, 2018
December 31, 2017
Gross
carrying
amount
$
$
723
3,320
1,329
5,372
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
amounts in millions
Net
Accumulated
amortization
carrying
amount
(583)
(2,768)
(963)
(4,314)
140
552
366
1,058
730
3,356
1,268
5,354
(652)
(2,626)
(828)
(4,106)
78
730
440
1,248
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 $426 million, $549 million and $703 million
for the years ended December 31, 2018, 2017 and 2016, respectively. Based on its amortizable intangible assets as of
December 31, 2018, Qurate Retail expects that amortization expense will be as follows for the next five years (amounts in
millions):
2019
2020
2021
2022
2023
Impairments
$
$
$
$
$
318
240
166
78
76
The Company performed a qualitative goodwill impairment analysis during the fourth quarter of 2018 and
determined that triggering events existed at the HSN reporting unit due to a variety of factors, primarily HSN’s inability to
meet its 2018 revenue projections. With the assistance of an external valuation expert, the Company determined the estimated
business enterprise value of HSN, including its intangible assets and goodwill, and the estimated value of its tradename
intangible asset as of December 31, 2018. The business enterprise valuation was performed using a combination of a
discounted cash flow model using HSN’s projections of future operating performance (income approach) and market
multiples (market approach) (Level 3). The tradename valuation was performed using a relief from royalties method,
primarily using a discounted cash flow model using HSN’s projections of future operating performance (income approach)
and applying a royalty rate (market approach) (Level 3). As a result of the analysis, HSN recorded a $30 million impairment
to its tradename intangible asset, but no impairment of HSN’s goodwill was necessary.
As of December 31, 2018 the Company had no accumulated goodwill impairment losses.
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Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(8) Debt
Debt is summarized as follows:
Corporate level debentures
8.5% Senior Debentures due 2029
8.25% Senior Debentures due 2030
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
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 6.375% Senior Secured Notes due 2067
QVC Bank Credit Facilities
HSN Bank Credit Facility
Other subsidiary debt
Deferred loan costs
Total consolidated Qurate Retail debt
Less debt classified as current
Total long-term debt
Exchangeable Senior Debentures
Outstanding
principal
December 31, December 31, December 31,
2018
amounts in millions
Carrying value
2017
2018
$
$
287
504
433
434
318
—
332
400
500
750
600
600
400
300
225
1,320
—
188
—
7,591
$
286
502
304
307
377
2
344
399
500
750
600
599
399
300
225
1,320
—
188
(29)
7,373
(1,410)
5,963
285
502
316
318
342
2
868
399
500
750
600
599
399
300
—
1,763
460
170
(24)
8,549
(996)
7,553
Each $1,000 debenture of Liberty Interactive LLC’s (“LI LLC”) 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. LI LLC may, at its election, pay the exchange value in cash,
Sprint and CenturyLink common stock or a combination thereof. LI 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 LI 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. LI LLC may, at its
election, pay the exchange value in cash, Sprint and CenturyLink common stock or a combination thereof. Qurate Retail, 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.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Each $1,000 debenture of LI LLC's 3.5% Exchangeable Senior Debentures (the "Motorola Exchangeables") is
exchangeable at the holder's option for the value of 5.2598 shares of Motorola Solutions, Inc. The remaining exchange value
is payable, at Qurate Retail's option, in cash or MSI stock or a combination thereof. LI 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 various principal payments made to holders of the Motorola Exchangeables, the adjusted principal
amount of each $1,000 debenture is $531 as of December 31, 2018.
Each $1,000 original principal amount of the 0.75% Exchangeable Senior Debentures due 2043 is exchangeable for
a basket of 3.1648 shares of common stock of Charter and 7.4199 shares of common stock of AT&T 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 LI LLC, cash or a combination of 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. Subsequent to December 31, 2017, an extraordinary additional distribution
was made to the holders of the 0.75% Exchangeable Senior Debentures due 2043 in the amount of $11.9399 per $1,000
original principal of the debentures, which is attributable to the cash consideration of $18.50 per share paid to former holders
of common stock of Time Inc. on January 31, 2018, in connection with the acquisition of Time Inc. by Meredith Corporation.
The Company paid the extraordinary additional distribution on March 1, 2018, to holders of record of the 0.75%
Exchangeable Senior Debentures due 2043 on February 14, 2018, the special record date for the extraordinary additional
distribution.
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 Qurate Retail made cash payments of
approximately $1,181 million to settle the obligations. In addition, an extraordinary distribution of approximately $325
million was paid to holders of the 0.75% Exchangeable Senior Debentures due 2043.
In August 2016, Qurate Retail 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. Qurate Retail 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,
Qurate Retail, 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. See note 6 for additional information about these debentures.
Qurate Retail 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. Qurate Retail
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.
Qurate Retail 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 Qurate Retail can no longer use owned shares to redeem the
debentures, Qurate Retail has classified for financial reporting purposes the portion due 2043 of the debentures that could be
redeemed for cash as a current liability. Exchangeable Senior Debentures classified as current totaled $990 million at
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
December 31, 2018. 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.
In January 2016, the FASB issued new accounting guidance that is intended to improve the recognition and
measurement of financial instruments. The Company adopted this guidance during the first quarter of 2018. A portion of the
unrealized gain (loss) recognized on the Company’s exchangeable debt accounted for at fair value is now presented in other
comprehensive income as it relates to instrument specific credit risk on the consolidated statements of comprehensive
income.
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 $3 million at December 31, 2018 and $4 million at December 31, 2017. 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. 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. During prior years, QVC issued $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.
In September 2018, QVC completed a registered debt offering for $225 million of 6.375% Senior Notes due 2067 (the
“2067 Notes”). The proceeds were used to partially prepay existing indebtedness under QVC’s senior secured credit facility
and for general corporate purposes. The costs to complete the financing were deferred and are being amortized to interest
expense over the term of the 2067 Notes. Interest on the 2067 Notes will be paid quarterly in March, June, September and
December, commencing on December 15, 2018. QVC has the option to call the 2067 Notes after 5 years at par value.
QVC Bank Credit Facilities
On December 31, 2018, QVC entered into the Fourth Amended and Restated Credit Agreement with zulily as co-
borrower (collectively, the “Borrowers”) which is a multi-currency facility that provides for a $3.65 billion revolving credit
facility, with a $450 million sub-limit for standby letters of credit and up to $1.8 billion of uncommitted incremental
revolving loan commitments or incremental term loans. The Fourth Amended and Restated Credit Agreement includes a
$400 million tranche that may be borrowed by the Company or zulily, with a $50 million sub-limit for standby letters of
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Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
credit. The remaining $3.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that
are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between
0.25% and 0.75% depending on the Borrowers’ combined ratio of consolidated total debt to consolidated EBITDA (the
“consolidated leverage ratio”). Borrowings that are LIBOR loans will bear interest at a per annum rate equal to the applicable
LIBOR plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ combined consolidated leverage
ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No
mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided
that, if zulily ceases to be controlled by Qurate Retail, all of its loans must be repaid and its letters of credit cash
collateralized. The facility matures on December 31, 2023. Payment of loans may be accelerated following certain customary
events of default.
The purpose of the amendment was to, among other things, repay certain fees and expenses, finance working capital
needs and general corporate purposes of the Company and their respective subsidiaries and make certain restricted payments
and loans to the Company's respective parents and affiliates. The payment and performance of the borrowers’ obligations
(including zulily’s obligations) under the Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s
Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement). Further, the borrowings
under the Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of
all of QVC’s equity interests. In addition, 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 zulily and secured by a pledge of all of zulily’s
equity interests.
The Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including
certain restrictions on QVC and zulily and each of their respective 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; and limiting the Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated
Leverage Ratio.
The interest rate on borrowings outstanding under the Fourth Amended and Restated Credit Agreement was 3.9% at
December 31, 2018. Availability under the Fourth Amended and Restated Credit Agreement at December 31, 2018 was
$2.3 billion, net of $20 million of outstanding standby letters of credit.
HSN Bank Credit Facility
On January 27, 2015, HSN entered into a $1.25 billion five-year syndicated credit agreement ("Credit Agreement")
which was secured by 100% of the voting equity securities of HSN's U.S. subsidiaries and 65% of HSN's first-tier foreign
subsidiaries. Certain HSN subsidiaries have unconditionally guaranteed HSN's obligations under the Credit Agreement. The
Credit Agreement, which included a $750 million revolving credit facility and a $500 million term loan, could be increased
up to $1.75 billion subject to certain conditions and was set to expire on January 27, 2020. On December 29, 2017, the Credit
Agreement was amended, the outstanding balance on the term loan was repaid, and the revolving credit facility was increased
to $1 billion. The maturity of the revolving credit facility was extended to December 29, 2022. Loans under the amended
Credit Agreement bore interest at a per annum rate equal to LIBOR plus a predetermined margin that ranges from 1.25% to
1.75% or the Base Rate (as defined in the Credit Agreement) plus a predetermined margin that ranges from 0.25% to
0.75%. HSN paid a commitment fee ranging from 0.20% to 0.30% (based on the leverage ratio) on the unused portion of the
revolving credit facility. On December 31, 2018, the HSN Credit Agreement was terminated and the outstanding balance on
the term loan was repaid. As a result of the termination of the
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
HSN Credit Agreement, the Company recorded a loss on debt extinguishment of $2 million within Other, net in the
consolidated statements of operation.
Interest Rate Swap Arrangements
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 (losses) on financial instruments, net in the accompanying consolidated
statements of operations.
As of December 31, 2017, HSN had an outstanding interest rate swap that effectively converted $250 million of its
variable rate bank credit facility to a fixed rate of 1.05% with a maturity date in January 2020 (the swapped fixed rate is
exclusive of the credit spread under the Credit Agreement). Based on HSN's leverage ratio as of December 31, 2017, the all-
in fixed rate was 2.3525%. The Company accounts for the interest rate swaps at fair value with changes recorded through
other (expense) income in the consolidated statements of operations. On December 31, 2018, the interest rate swap was
terminated as a result of the termination of the HSN Credit Agreement. Subsequently, QVC entered into a thirteen month
interest rate swap arrangement with the same terms.
Other Subsidiary Debt
Other subsidiary debt at December 31, 2018 is comprised of capitalized satellite transponder lease obligations.
Debt Covenants
Qurate Retail and its subsidiaries were in compliance with all debt covenants at December 31, 2018.
Five Year Maturities
The annual principal maturities of Qurate Retail's debt and capital lease obligations, based on stated maturity dates,
for each of the next five years is as follows (amounts in millions):
2019
2020
2021
2022
2023
Fair Value of Debt
$
$
$
$
$
433
32
32
530
2,101
Qurate Retail 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 Qurate Retail for debt of the same remaining maturities. The fair value, based on quoted prices
of instruments not considered to be active markets (Level 2), of Qurate Retail's publicly traded debt securities that are not
reported at fair value in the accompanying consolidated balance sheets is as follows (amounts in millions):
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
Senior debentures
QVC senior secured notes
December 31,
2018
786
3,573
$
$
2017
866
3,636
Due to the variable rate nature, Qurate Retail believes that the carrying amount of its subsidiary debt not discussed
above approximated fair value at December 31, 2018.
(9) Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act makes broad and complex changes
to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21
percent; (2) providing bonus depreciation that will allow for full expensing of qualified property; (3) creating a new
limitation on deductible interest expense; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how
existing AMT credits can be realized; (5) changing rules related to uses and limitations of net operating loss carryforwards
created in tax years beginning after December 31, 2017; (6) adding limitations on the deductibility of certain executive
compensation; and (7) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is
payable over eight years. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company reflected
the income tax effects of those aspects of the Tax Act for which the accounting is known as of December 31, 2017 and made
immaterial revisions to such amounts during the allowed one year measurement period. As of December 31, 2018, the
Company has completed its analysis of the tax effects of the Tax Act.
The corporate rate reduction was applied to our inventory of deferred tax assets and deferred tax liabilities which
resulted in the net tax benefit in the period ended December 31, 2017.
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,
2018
2017
2016
amounts in millions
$
$
$
$
(126)
(35)
(84)
(245)
131
57
(3)
185
(60)
(61)
(23)
(88)
(172)
1,252
(95)
—
1,157
985
(40)
(12)
(73)
(125)
(186)
(9)
4
(191)
(316)
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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,
2018
2017
2016
amounts in millions
$
$
683
200
883
841
209
1,050
923
168
1,091
Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of
21% in 2018 and 35% in 2017 and 2016 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
Dividends received deductions
Alternative energy tax credits and incentives
Change in valuation allowance affecting tax expense
Change in tax rate due to Tax Act
Change in state tax rate
Consolidation of equity investment
Other, net
Income tax benefit (expense)
Years ended December 31,
2018
2017 2016
amounts in millions
$
$
(186)
(13)
(5)
—
92
9
—
61
—
(18)
(60)
(367)
(16)
(32)
10
85
(100)
1,317
(71)
138
21
985
(382)
(11)
(9)
9
94
(16)
—
1
—
(2)
(316)
For the year ended December 31, 2018 income tax expense was lower than the U.S. statutory rate of 21% due to tax
benefits from tax credits and incentives generated by our alternative energy investments, a reduction in the Company’s state
effective tax rate used to measure deferred taxes resulting from the GCI Liberty Split-Off in March 2018, and a reduction in
the Company’s state effective tax rate used to measure deferred taxes resulting from a state law change during the second
quarter.
For the year ended December 31, 2017 the significant reconciling items were net tax benefits for the effect of the
change in the U.S. federal corporate tax rate from 35% to 21% on deferred taxes, the tax-free consolidation of our equity
method investment in HSN, and tax benefits derived from Qurate Retail’s alternative energy tax credits and incentives,
partially offset by net tax expense for an increase in the Company’s valuation allowance and an increase in the Company’s
state effective tax rate used to measure deferred taxes.
The Company has also evaluated the impact of the one-time mandatory repatriation provision of the Tax Act. Under
that provision, earnings and profits of certain of the Company’s foreign subsidiaries not previously subjected to US tax could
be subjected to US tax in 2017 at reduced rates. The Tax Act allows that earnings and profits deficits of certain subsidiaries
may be used to offset the surpluses in others in computing the amount subject to the tax under the mandatory repatriation
provision. The Company has performed an evaluation of its earnings and profits of its foreign subsidiaries and
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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
concluded that deficits in some of the subsidiaries offset the surpluses in others so that no amount is subject to the mandatory
repatriation provision of the Tax Act.
Income tax expense was lower than the U.S. statutory tax rate of 35% in 2016 due to tax benefits derived from
Qurate Retail’s alternative energy tax credits and incentives.
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:
Tax losses 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,
2018
2017
amounts in millions
$
177
121
30
65
110
503
(154)
349
55
1,123
1,067
—
29
2,274
$ 1,925
160
98
51
19
190
518
(165)
353
600
1,188
981
43
41
2,853
2,500
The Company's valuation allowance decreased $11 million in 2018, and $9 million of the change in valuation
allowance affected tax expense and is primarily the result of new provisions in the Tax Act that changed the Company’s
judgment with respect to the future utilization of its foreign tax credit carryforward. The remaining $2 million affected equity.
At December 31, 2018, the Company has a deferred tax asset of $177 million for net operating losses and interest
expense carryforwards, and a deferred tax asset of $121 million for foreign tax credit carryforwards. The net operating
losses are expected to be utilized prior to expiration, except for $107 million. As a result of the international provisions in the
Tax Act, the Company estimates that $47 million of its foreign tax credit carryforward will expire without utilization.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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,
2018 2017 2016
amounts in millions
71
9
2
—
(12)
70
104
16
—
(26)
(22)
72
72
10
4
—
(15)
71
$
As of December 31, 2018, 2017 and 2016, the Company had recorded tax reserves of $70 million, $71 million and
$72 million, respectively, related to unrecognized tax benefits for uncertain tax positions. If such tax benefits were to be
recognized for financial statement purposes, $56 million, $60 million and $50 million for the years ended December 31,
2018, 2017 and 2016, respectively, would be reflected in the Company's tax expense and affect its effective tax rate. Qurate
Retail'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 2018. 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 $0.6 million.
As of December 31, 2018, the Company's tax years prior to 2015 are closed for federal income tax purposes, and the
IRS has completed its examination of the Company's 2015 and 2016 tax years. The Company's 2017 and 2018 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. The Company is not under audit in any foreign tax
jurisdictions, and no QVC subsidiaries are currently under audit in any foreign jurisdiction.
The Company recorded $20 million of accrued interest and penalties related to uncertain tax positions as of
December 31, 2018, and $17 million as of each of December 31, 2017 and 2016.
(10) Stockholders' Equity
Preferred Stock
Qurate Retail'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 Qurate Retail's Board of Directors. As of
December 31, 2018, no shares of preferred stock were issued.
Common Stock
Series A Qurate Retail common stock has one vote per share, and Series B Qurate Retail 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.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
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, 2018, Qurate Retail reserved for issuance upon exercise of outstanding stock options
approximately 28.4 million shares of Series A Qurate Retail common stock and approximately 1.8 million shares of Series B
Qurate Retail common stock.
In addition to the Series A and Series B Qurate Retail common stock, there are 4 billion shares of Series C Qurate
Retail common stock authorized for issuance, respectively. As of December 31, 2018, no shares of any Series C Qurate Retail
common stock were issued or outstanding.
On December 29, 2017, in conjunction with the acquisition of HSN, Qurate Retail issued 53.6 million shares of
Series A Qurate Retail common stock. See additional discussion about the acquisition in note 4.
Additionally, as discussed in note 1, on November 4, 2016, Qurate Retail 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 Qurate Retail’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 Qurate Retail’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).
As discussed in note 1, on March 9, 2018, Qurate Retail completed the GCI Liberty Split-Off. As part of the GCI
Liberty Split-Off, all outstanding shares of Series A Liberty Ventures common stock were redeemed for one share of GCI
Liberty Class A common stock and each outstanding share of Series B Liberty Ventures common stock was redeemed for one
share of GCI Liberty Class B common stock.
Purchases of Common Stock
During the year ended December 31, 2016, the Company repurchased 34,836,196 shares of Series A Qurate Retail
common stock for aggregate cash consideration of $799 million.
During the year ended December 31, 2017, the Company repurchased 34,765,751 shares of Series A Qurate Retail
common stock for aggregate cash consideration of $766 million.
During the year ended December 31, 2018, the Company repurchased 43,080,787 shares of Series A Qurate Retail
common stock for aggregate cash consideration of $988 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.
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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(11) Related Party Transactions with Officers and Directors
Chairman Compensation Arrangement
In December 2014, the Compensation Committee of Qurate Retail approved a compensation arrangement, including
term options discussed in note 12, for its current Chairman of the Board (the "Chairman"). 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 Chairman 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 Chairman is terminated by Qurate Retail 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 $11.75 million 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 Chairman 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, a payment
equal to $11.75 million pro rated based upon the elapsed number of days in the calendar year of termination, 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
Chairman'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 $11.75 million
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 Chairman’s compensation arrangement, he receives aggregate target equity awards allocated
between Qurate Retail 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 addition, Qurate Retail and Liberty Media’s compensation committees
may grant additional equity awards each year up to a maximum of 50% of the target amount allocated to Qurate Retail for the
relevant year.
CEO Compensation Agreement
On September 27, 2015, the Compensation Committee of Qurate Retail approved a compensation arrangement for
our current CEO. The arrangement provides for a five year employment term beginning December 16, 2015 and ending
December 31, 2020, with an annual base salary of $1.25 million and an annual target cash bonus equal to 100% of the CEO’s
annual base salary. The arrangement also provides the CEO with the opportunity to earn annual performance-based equity
incentive awards during the employment term. Beginning in 2016, the CEO received an annual $4.125 million grant of
performance-based RSUs with respect to QRTEA. Also, on September 27, 2015, in connection with the approval of his
compensation arrangement, the CEO received a one-time grant of 1,680,065 stock options to purchase shares of QRTEA with
an exercise price of $26.00 per share. Such options vest 50% on December 31, 2019 and 50% on December 31, 2020, with
an expiration date of December 31, 2022.
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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
In connection with the CEO’s appointment to this position on March 9, 2018, the Compensation Committee of
Qurate Retail approved a one-time grant of stock options and performance-based RSUs to the CEO on August 13, 2018. The
options consist of 577,358 options to purchase shares of QRTEA with an exercise price of $22.18. Such options vest 50% on
December 15, 2019 and 50% on December 15, 2020, and have a seven year term. The RSUs consist of 182,983
performance-based RSUs with respect to QRTEA which vest on December 21, 2020 based on performance of the Company
and the personal performance of the CEO, and at the sole discretion of the Compensation Committee.
(12) Stock-Based Compensation
Qurate Retail - Incentive Plans
Pursuant to the Qurate Retail, Inc. 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 Qurate Retail
common stock. Awards generally vest over 4-5 years and have a term of 7-10 years. Qurate Retail issues new shares upon
exercise of equity awards.
In connection with the HSN acquisition in December 2017 (see note 4), outstanding awards to purchase shares of
HSN common stock (an “HSN Award”) were exchanged for awards to purchase shares of Series A Qurate Retail common
stock (a “QRTEA Award”). The exercise prices and number of shares subject to the QRTEA Award were determined based
on (1) the exercise prices and number of shares subject to the HSN Award and (2) the acquisition exchange ratio. The
exchange of such awards was considered a modification under ASC 805 – Business Combinations. A portion of the fair
value of the replacement QRTEA 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 Expedia Holdings Split-Off in November 2016, the holder of an outstanding award to
purchase shares of Liberty Ventures Series A and Series B common stock (a “Liberty Ventures Award”) received an Award to
purchase shares of the corresponding series of Expedia Holdings common stock and an adjustment to the exercise price and
number of shares subject to the Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”). Following
the Expedia Holdings Split-Off, employees of Qurate Retail hold Awards in both Liberty Ventures common stock and
Expedia Holdings common stock. The compensation expense relating to employees of Qurate Retail is recorded at Qurate
Retail.
In connection with the CommerceHub Spin-Off in July 2016, the holder of an outstanding award to purchase shares
of Liberty Ventures Series A and Series B common stock (an “Original Liberty Ventures Award”) received an adjustment to
the exercise price and number of shares subject to the Original Liberty Ventures Award (as so adjusted, an “Adjusted Liberty
Ventures Award”). A holder of an Original Liberty Ventures Award who was a member of the board of directors or an officer
of Qurate Retail holding the position of Vice President or above also received an Award to purchase shares of the
corresponding series of CommerceHub common stock as well as Series C CommerceHub common stock (in each case, a
“CommerceHub Award”). Following the CommerceHub Spin-Off, employees of Qurate Retail may hold Awards in both
Liberty Ventures common stock and CommerceHub common stock. The compensation expense relating to employees of
Qurate Retail is recorded at Qurate Retail.
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Qurate Retail – Grants
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The following table presents the number and weighted average grant-date fair value (“GDFV”) of options granted
by Qurate Retail during the years ended December 31, 2018, 2017 and 2016:
For the Years ended December 31,
2018
2017
2016
Options
Granted
(000's)
Weighted
Average
GDFV
Options
Granted
(000's)
Weighted
Average
GDFV
Options
Granted
(000's)
Weighted
Average
GDFV
Series A Qurate Retail common stock, QVC employees (1)
Series A Qurate Retail common stock, zulily employees (1)
Series A Qurate Retail common stock, HSN employees (1)
Series A Qurate Retail common stock, Liberty employees
and directors (2)
Series A Qurate Retail common stock, Qurate Retail
President and CEO (3)
Series B Qurate Retail common stock, Qurate Retail
Chairman of the Board (4)
Series A Ventures Group common stock, Qurate Retail
employees and directors (2)
Series B Ventures Group common stock, Qurate Retail
Chairman of the Board (4)
2,924 $
8.76
3,115 $
336 $
859 $
8.65
8.77
483 $
NA
7.86
7.86
NA
2,860 $
433 $
NA
72 $
7.31
518 $
7.81
421 $
577 $
7.09
NA
NA
NA
175 $
8.84
154 $
7.92
730 $
NA $
NA
188 $
16.52
114 $
143 $
16.55
269 $
15.41
209 $
7.84
7.57
NA
8.02
NA
7.47
12.25
12.48
(1) Mainly vests semi-annually over four years.
(2) Mainly vests between three and five years for employees and in one year for directors.
(3) Vests 50% on each of December 15, 2019 and 2020.
(4) Grants in 2018, 2017 and 2016 cliff vested at the end of their respective grant year. Grants were made in connection with
his employment agreement (see note 11).
In connection with the Option Exchange in 2017 (see below), Qurate Retail granted 5.9 million, 946 thousand and
1.1 million options to purchase shares of Series A Qurate Retail common stock, Series A Liberty Ventures common stock and
Series B Liberty Ventures common stock, respectively. Such options had an incremental weighted average GDFV of $3.49,
$8.53 and $6.94, respectively.
In addition to the stock option grants to the Qurate Retail Chairman of the Board, Qurate Retail granted
performance-based restricted stock units ("RSUs") of Series B Qurate Retail common stock in 2018, 2017 and 2016 of 124
thousand, 115 thousand and 53 thousand, respectively. The RSUs had a fair value of $27.56, $19.90 and $25.11 per share,
respectively, at the time they were granted. Qurate Retail also granted performance-based RSUs of Series B Liberty Ventures
common stock in 2016 of 16 thousand. The RSUs had a fair value of $38.79 per share at the time they were granted. The
2018, 2017 and 2016 performance-based RSUs cliff vested in one year, subject to the satisfaction of certain performance
objectives and based on an amount determined by the compensation committee.
During the fourth quarter of 2017, the Company entered into a series of transactions with certain officers of Qurate
Retail, associated with certain outstanding stock options, in order to recognize tax deductions in 2017 versus future years
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(the “Option Exchange”). On December 26, 2017 (the “Grant Date”), pursuant to the approval of the Compensation
Committee of its Board of Directors, the Company effected the acceleration of (i) each unvested in-the-money option to
acquire shares of LVNTA and (ii) each unvested in-the-money option to acquire shares of LVNTB, in each case, held by
certain of its officers (collectively, the “Eligible Optionholders”). Following this acceleration, also on the Grant Date, each
Eligible Optionholder exercised, on a net settled basis, all of his outstanding in-the-money vested and unvested options to
acquire QRTEA shares, LVNTA shares and LVNTB shares (the “Eligible Options”), and:
·
with respect to each vested Eligible Option, the Company granted the Eligible Optionholder a vested new
option with substantially the same terms and conditions as the exercised vested Eligible Option, except that the
exercise price for the new option was, in the case of options to acquire shares of QRTEA or LVNTA, the closing
price on the Grant Date per QRTEA or LVNTA share, as applicable, and, in the case of options to acquire
shares of LVNTB, the fair market value on the Grant Date of the LVNTB shares as determined pursuant to the
incentive plan under which the awards were granted; and
·
with respect to each unvested Eligible Option:
o
o
in satisfaction of the exercise, on a net settled basis, of the unvested Eligible Options, the Company
granted the Eligible Optionholder a number of restricted LVNTA or LVNTB shares (the “Restricted
Shares”) with a vesting schedule identical to that of the unvested Eligible Options so exercised, and the
Eligible Optionholder made an election under Section 83(b) of the Internal Revenue Code with respect
to such Restricted Shares; and
the Company granted the Eligible Optionholder a new option (the “Unvested New Option”) to acquire
the same series of common stock and with substantially the same terms and conditions, including with
respect to vesting and expiration, as the unvested Eligible Option exercised as set forth above, except
that the number of LVNTA or LVNTB shares subject to such Unvested New Option was equal to the
number of shares subject to the unvested Eligible Option minus the number of Restricted Shares
received upon exercise of such unvested Eligible Option. The exercise price of such new option was,
in the case of a LVNTA option, the closing price on the Grant Date per share of LVNTA, or, in the case
of a LVNTB option, the fair market value on the Grant Date of the LVNTB shares as determined
pursuant to the incentive plan under which the Unvested New Options were granted.
The Option Exchange was considered a modification under ASC 718 – Stock Compensation, with the following
impacts on compensation expense. The unamortized value of the unvested Eligible Options that were exercised, which was
$14 million for LVNTA and LVNTB combined, will be expensed over the vesting period of the Restricted Shares attributable
to the exercise of those options; of this amount, $6 million of expense was assumed by GCI Liberty as a result of the GCI
Liberty Split-Off. The grant of new vested options resulted in incremental compensation expense in the fourth quarter of
2017 of $30 million for QRTEA, LVNTA and LVNTB combined. The grant of Unvested New Options resulted in
incremental compensation expense totaling $6 million for LVNTA and LVNTB combined, which will be amortized over the
vesting periods of those options; of this amount, $5.8 million of incremental compensation expense was assumed by GCI
Liberty as a result of the GCI Liberty Split-Off.
The Company has calculated the GDFV 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 2018, 2017 and 2016, the range of expected terms was 2.0 to 6.4 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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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The following table presents the range of volatilities used by Qurate Retail in the Black-Scholes-Merton Model for
the 2018, 2017 and 2016 Qurate Retail and Liberty Ventures grants.
2018 grants
Qurate Retail options
Liberty Ventures options
2017 grants
Qurate Retail options
Liberty Ventures options
2016 grants
Qurate Retail options
Liberty Ventures options
Qurate Retail - Outstanding Awards
Volatility
29.7 %
27.9 %
26.9 %
25.9 %
27.4 %
30.6 %
-
-
-
-
-
-
30.5 %
27.9 %
32.7 %
28.9 %
27.4 %
30.6 %
The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase
Qurate Retail 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.
Qurate Retail
Outstanding at January 1, 2018
Granted
Exercised
Forfeited/Cancelled
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Outstanding at January 1, 2018
Granted
Exercised
Forfeited/Cancelled
GCI Liberty Split-Off
Outstanding at December 31, 2018
Series A
Weighted Aggregate
average
remaining
life
intrinsic
value
Awards
(000's) WAEP
32,361 $ 23.48
4,768 $ 26.78
(4,269) $ 16.47
(4,422) $ 27.43
28,438 $ 24.47
17,371 $ 23.80
Awards
(in millions) (000's) WAEP
1,643 $ 27.16
175 $ 27.77
—
— $
—
— $
1,818 $ 27.22
1,495 $ 26.65
23
20
3.6 years $
2.6 years $
Series B
Weighted Aggregate
intrinsic
average
remaining
life
value
(in millions)
4.0 years $
4.2 years $
—
—
Liberty Ventures
Series A
Weighted Aggregate
average
remaining
life
intrinsic
value
Awards
(in millions) (000's) WAEP
1,080 $ 56.38
143 $ 54.01
—
— $
—
— $
(1,223) $ 56.10
—
— $
—
Awards
(000's) WAEP
1,670 $ 47.12
— $
—
(2) $ 18.41
—
— $
(1,668) $ 47.15
—
— $
Series B
Weighted Aggregate
intrinsic
average
remaining
life
value
(in millions)
— years $
— years
$
—
II-73
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
As of December 31, 2018, the total unrecognized compensation cost related to unvested Qurate Retail Awards was
approximately $71 million. Such amount will be recognized in the Company's consolidated statements of operations over a
weighted average period of approximately 1.7 years.
As of December 31, 2018, Qurate Retail reserved 30.3 million shares of Series A and Series B common stock for
issuance under exercise privileges of outstanding stock Awards.
Qurate Retail - Exercises
The aggregate intrinsic value of all options exercised during the years ended December 31, 2018, 2017 and 2016
was $28 million, $145 million and $44 million, respectively. The aggregate intrinsic value of options exercised for the year
ended December 31, 2017 includes approximately $104 million related to the intrinsic value of options exercised as a result
of the Option Exchange.
Qurate Retail - Restricted Stock
The Company had approximately 4.2 million unvested restricted shares of Qurate Retail common stock, held by
certain directors, officers and employees of the Company as of December 31, 2018. These Series A and Series B unvested
restricted shares of Qurate Retail had a weighted average GDFV of $24.28 per share.
The aggregate fair value of all restricted shares of Qurate Retail common stock that vested during the years ended
December 31, 2018, 2017 and 2016 was $64 million, $23 million and $26 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 Qurate Retail.
(13) Employee Benefit Plans
Subsidiaries of Qurate Retail sponsor 401(k) plans, which provide their employees an opportunity to make
contributions to a trust for investment in Qurate Retail 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 $26 million, $20 million and $25 million, respectively, for
the years ended December 31, 2018, 2017 and 2016, respectively.
(14) Other Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in the Company’s consolidated balance sheets and
consolidated statements of equity reflect the aggregate of foreign currency translation adjustments, comprehensive earnings
(loss) attributable to debt credit risk adjustments and the Company's share of accumulated other comprehensive earnings of
affiliates.
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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The change in the components of accumulated other comprehensive earnings (loss), net of taxes ("AOCI"), is
summarized as follows:
Balance at January 1, 2016
Other comprehensive earnings (loss) attributable to Qurate Retail,
Inc. stockholders
Distribution of Liberty Expedia Holdings
Balance at December 31, 2016
Other comprehensive earnings (loss) attributable to Qurate Retail,
Inc. stockholders
Balance at December 31, 2017
Other comprehensive earnings (loss) attributable to Qurate Retail,
Inc. stockholders
Cumulative effect of accounting change
Balance at December 31, 2018
Comprehensive
Foreign Share of Earnings (loss)
Attributable to
currency
translation of equity Debt Credit Risk
AOCI
adjustments affiliates
Adjustments
Other AOCI
$
(175)
(40)
—
—
(215)
amounts in millions
(85)
—
(260)
130
(130)
(50)
—
(180)
$
$
(1)
35
(6)
3
(3)
(2)
—
(5)
—
—
—
—
—
—
(86)
35
(266)
—
—
—
—
133
(133)
38
—
38
16
76
92
2
76
(55)
The components of other comprehensive earnings (loss) are reflected in Qurate Retail'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
amounts in millions
amount
amount
Year ended December 31, 2018:
Foreign currency translation adjustments
Recognition of previously unrealized losses (gains) on debt, net
Share of other comprehensive earnings (loss) of equity affiliates
Comprehensive earnings (loss) attributable to debt credit risk adjustments
Other comprehensive earnings (loss)
Year ended December 31, 2017:
Foreign currency translation adjustments
Share of other comprehensive earnings (loss) of equity affiliates
Other comprehensive earnings (loss)
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)
II-75
$
$
$
$
$
$
(49)
21
(3)
50
19
155
5
160
(97)
(8)
(3)
10
(98)
1
(5)
1
(12)
(15)
(21)
(2)
(23)
13
3
1
(4)
13
(48)
16
(2)
38
4
134
3
137
(84)
(5)
(2)
6
(85)
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(15) Commitments and Contingencies
Operating Leases
Qurate Retail leases business offices, has entered into satellite transponder lease agreements and uses certain
equipment under lease arrangements. Rental expense under such arrangements amounted to $80 million, $45 million and $46
million for the years ended December 31, 2018, 2017 and 2016, respectively.
A summary of future minimum lease payments under noncancelable operating leases as of December 31, 2018
follows (amounts in millions):
Years ending December 31:
2019
2020
2021
2022
2023
Thereafter
$
$
$
$
$
$
72
61
52
42
36
115
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
2018.
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 west coast distribution center for an initial term of 15 years. Under the
Lease, QVC was 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 had an option to extend the term of the Lease for up to two consecutive terms of 10 years each.
In August 2018, QVC exercised the right to purchase the Premises and related land from the landlord by entering
into an amended and restated agreement (“New Lease”). QVC made an initial payment of $10 million and will make annual
payments of $12 million over a term of 13 years. QVC treats the New Lease within capital lease obligations and lease
payments are attributed to: (1) a reduction of the principal obligation and (2) imputed interest expense. In connection with the
New Lease, QVC capitalized the related land at fair market value while the building asset is currently being depreciated over
its estimated useful life of 20 years.
On October 5, 2018, QVC entered into a lease (“ECDC Lease”) for an East Coast distribution center as part of the
QRG Initiatives. The 1.7 million square foot rental building is located in Bethlehem, Pennsylvania and will be leased to QVC
for an initial term of 15 years. QVC expects the ECDC Lease to commence in the third quarter of 2019, at which point the
discounted value of the ECDC Lease will be recorded as an asset and a liability in the consolidated balance sheets in
accordance with ASU 2016-02, which the Company will adopt on January 1, 2019. Under the ECDC Lease, QVC will be
required to pay an initial base rent of approximately $10 million per year, increasing to approximately $14 million per
II-76
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
year, as well as all real estate taxes and other building operating costs. QVC also has the option to extend the term of the
ECDC Lease for up to two consecutive terms of 5 years each and one final term of 4 years.
Litigation
Qurate Retail has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary
course of business. Although it is reasonably possible Qurate Retail 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.
(16) Information About Qurate Retail's Operating Segments
Qurate Retail, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video
and on-line commerce industries. Qurate Retail 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 Qurate Retail's annual pre-tax earnings. The segment
presentation for prior periods has been conformed to the current period segment presentation.
Qurate Retail 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, Qurate Retail reviews nonfinancial measures such as unique
website visitors, conversion rates and active customers, as appropriate.
Qurate Retail defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and
administrative expenses (excluding stock-based compensation). Qurate Retail 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, transaction related costs (including restructuring, integration, and advisory fees),
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. Qurate Retail generally
accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
During the second quarter of 2018 the Company changed its reportable segments to include QVC U.S. and QVC
International, and presented prior period information to conform with this change. Previously, QVC was considered one
reportable segment. As a result of the GCI Liberty Split-Off, and the related management transitions, a new Chief Operating
Decision Maker (“CODM”) was identified, and the information that the new CODM reviews is aggregated differently than it
was prior to the Transactions.
For the year ended December 31, 2018, Qurate Retail has identified the following consolidated subsidiaries as its
reportable segments:
II-77
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
·
·
·
QVC U.S. and QVC International – 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.
HSN – consolidated subsidiary that markets and sells a wide variety of consumer products primarily in the U.S.
by means of its televised shopping programs and via the Internet and mobile transactions through its domestic
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.
Qurate Retail'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 subsidiaries are the same as those described in
the Company's summary of significant accounting policies.
Performance Measures
QVC U.S.
QVC International
HSN
zulily
Corporate and other
Inter-segment eliminations
Consolidated Qurate Retail
Other Information
Total
assets
Years ended December 31,
Revenue
2018
2017
Adjusted
Adjusted
OIBDA Revenue OIBDA Revenue
amounts in millions
2016
Adjusted
OIBDA
$ 6,349
2,738
2,202
1,817
973
(9)
$ 14,070
1,417
429
213
108
(13)
—
2,154
6,140
2,631
NA
1,613
23
(3)
10,404
1,455
451
NA
91
(47)
—
1,950
6,120
2,562
NA
1,547
428
(10)
10,647
1,435
405
NA
112
(13)
—
1,939
December 31, 2018
Investments
in
affiliates
Capital
expenditures
December 31, 2017
Investments
in
Capital
affiliates
expenditures
Total
assets
$
QVC U.S.
QVC International
HSN
zulily
Corporate and other
Inter-group eliminations
Consolidated Qurate Retail
$
9,900
2,154
2,917
2,199
671
—
17,841
38
—
—
—
97
—
135
amounts in millions
143
67
18
24
23
—
275
9,544
2,121
2,798
2,323
7,336
—
24,122
40
—
—
—
269
—
309
116
36
—
49
3
—
204
II-78
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
The following table provides a reconciliation of consolidated segment Adjusted OIBDA to operating income and
earnings (loss) from continuing operations before income taxes:
Consolidated segment Adjusted OIBDA
Stock-based compensation
Depreciation and amortization
Transaction related costs
Impairment of intangible assets and long lived assets
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
Tax sharing income (expense) with GCI Liberty, Inc.
Other, net
Earnings (loss) from continuing operations before income taxes
Years ended December 31,
2018
2017 2016
amounts in millions
$ 2,154
(88)
(637)
(72)
(33)
1,324
(381)
(162)
76
1
32
(7)
883
$
1,950
(123)
(725)
(59)
—
1,043
(355)
(200)
145
410
—
7
1,050
1,939
(97)
(874)
—
—
968
(363)
(68)
414
9
—
131
1,091
Revenue by Geographic Area
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,
2018
2017
amounts in millions
2016
$ 11,233
947
943
947
$ 14,070
7,684
934
899
887
10,404
7,979
900
866
902
10,647
December 31,
2018
2017
amounts in millions
$
869
165
161
127
$ 1,322
895
143
164
139
1,341
II-79
Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
(17) Quarterly Financial Information (Unaudited)
As discussed in note 5, on March 9, 2018, Qurate Retail completed the GCI Liberty Split-Off. The unaudited
quarterly information below for 2018 and 2017 reflect Qurate Retail’s interest in Liberty Broadband as a discontinued
operation for all periods presented.
2018:
Revenue
Operating income
Net earnings (loss)
Net earnings (loss) attributable to Qurate Retail, Inc. stockholders:
Series A and Series B Qurate Retail 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
$ 3,230
294
$
397
$
3,233
358
198
3,231
237
82
$
$
142
242
187
—
72
—
4,376
435
287
273
—
Basic net earnings (loss) from continuing operations attributable to Qurate Retail,
Inc. stockholders per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$ 0.30
$ 1.17
0.40
NA
0.16
NA
0.61
—
Diluted net earnings (loss) from continuing operations attributable to Qurate Retail,
Inc. stockholders per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$ 0.30
$ 1.16
0.40
NA
0.16
NA
0.61
—
Basic net earnings (loss) attributable to Qurate Retail, Inc. stockholders per
common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$ 0.30
$ 2.81
0.40
NA
0.16
NA
0.61
—
Diluted net earnings (loss) attributable to Qurate Retail, Inc. stockholders per
common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$ 0.30
$ 2.78
0.40
NA
0.16
NA
0.61
—
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Table of Contents
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
December 31, 2018, 2017 and 2016
2017:
Revenue
Operating income
Net earnings (loss)
Net earnings (loss) attributable to Qurate Retail, Inc. stockholders:
Series A and Series B Qurate Retail 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
$
$
$
$
$
2,327
213
519
2,352
254
184
2,381
208
308
3,344
368
1,476
91
416
111
64
119
177
887
576
Basic net earnings (loss) from continuing operations attributable to Qurate Retail,
Inc. stockholders per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
$
0.20
4.89
0.25
0.75
0.27
2.06
2.07
6.70
Diluted net earnings (loss) from continuing operations attributable to Qurate
Retail, Inc. stockholders per common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
$
0.20
4.84
0.24
0.74
0.26
2.03
2.05
6.70
Basic net earnings (loss) attributable to Qurate Retail, Inc. stockholders per
common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
$
0.20
4.89
0.25
0.75
0.27
2.06
2.07
6.70
Diluted net earnings (loss) attributable to Qurate Retail, Inc. stockholders per
common share:
Series A and Series B Qurate Retail common stock
Series A and Series B Liberty Ventures common stock
$
$
0.20
4.84
0.24
0.74
0.26
2.03
2.05
6.70
II-81
Table of Contents
PART III
The following required information is incorporated by reference to our definitive proxy statement for our 2019
Annual Meeting of Stockholders presently scheduled to be held in the second quarter of 2019:
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 2019 Annual Meeting of Stockholders with the Securities
and Exchange Commission on or before April 30, 2019.
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:
Qurate Retail, Inc.:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2018 and 2017
Consolidated Statements of Operations, Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Earnings (loss), Years ended December 31, 2018, 2017
and 2016
Consolidated Statements of Cash Flows, Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Equity, Years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements, December 31, 2018, 2017 and 2016
(a)(2) Financial Statement Schedules
Page No.
II-28 & 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.
(a)(3) Exhibits
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
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)).
Agreement and Plan of Reorganization, dated as of April 4, 2017, by and among Liberty Interactive
Corporation, General Communication, Inc. and Liberty Interactive LLC (incorporated by reference to Annex A
to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017 (File No. 001-
33982)).
IV-1
Table of Contents
2.4
2.5
2.6
Agreement and Plan of Merger, dated as of July 5, 2017, by and among Liberty Interactive Corporation,
Liberty Horizon, Inc. and HSN, Inc. (included as Annex A to the proxy statement/prospectus forming a part of
the Registrant’s Registration Statement on Form S-4 filed on August 31, 2017 (File No. 333-220270).
Amendment No. 1 to Agreement and Plan of Reorganization, dated as of July 19, 2017, by and among Liberty
Interactive Corporation, Liberty Interactive LLC and General Communication, Inc. (incorporated by reference
to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017 (File
No. 001-33982)).
Amendment No. 2 to Agreement and Plan of Reorganization, dated as of November 8, 2017, by and among
Liberty Interactive Corporation, Liberty Interactive LLC and General Communication, Inc. (incorporated by
reference to Annex C to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29,
2017 (File No. 001-33982)).
3 - Articles of Incorporation and Bylaws:
3.1
3.2
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Amendment
No. 5 to the Registrant's Registration Statement on Form 8-A filed on May 24, 2018 (File No. 001-33982) (the
“2018 Form 8-A”)).
Amended and Restated Bylaws of the Registrant, as amended effective April 9, 2018 (incorporated by
reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed on April 10, 2018 (File No. 001-
33982)).
4 - Instruments Defining the Rights of Securities Holders, including Indentures:
4.1
4.2
4.3
Form of Specimen certificate for shares of the Registrant's Series A common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to the 2018 Form 8-A).
Form of Specimen certificate for shares of the Registrant's Series B common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.2 to the 2018 Form 8-A).
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 Registrant’s 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”). +
10.3
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). +
IV-2
Table of Contents
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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)
(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”)). +
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 Non-Qualified Stock Option Agreement under the 2002 Directors Plan and the 2011 Directors Plan
(incorporated by reference to Exhibit 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 Exhibit 10.20 to the Liberty 2011 10-K). +
IV-3
Table of Contents
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Non-Qualified Stock Option Agreement under the 2007 Incentive Plan for Michael George dated March 2,
2011 (incorporated by reference to Exhibit 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, Inc., 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)). +
First Amendment to Liberty Interactive Corporation Executive Employment Agreement, dated effective as of
March 9, 2018, by and between Liberty Interactive Corporation and Gregory B. Maffei (incorporated by
reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2018 filed on May 10, 2018 (File No. 001-33982) (the “Liberty 2018 Q1 10-Q”)). +
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). +
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)).
10.28
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).
10.29
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).
IV-4
Table of Contents
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
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 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 March 23, 2010 among QVC, Inc., 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, Inc., 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, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2013 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)).
Fourth Amended and Restated Credit Agreement, dated as of December 31, 2018, 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 QVC’s Current Report on Form 8-K
as filed on January 4, 2019 (File No. 001-38654)).
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)). +
IV-5
Table of Contents
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
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). +
Form of 2017 Performance-based Restricted Stock Unit Agreement (QVCB) under the Liberty Interactive
Corporation 2016 Omnibus Incentive Plan (the “2016 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 quarter ended September
30, 2017 filed on November 9, 2017 (File No. 001-33982) (the “2017 Q3 10-Q”)). +
Form of 2017 Term Option Agreement under the 2016 Incentive Plan for Gregory B. Maffei (incorporated by
reference to Exhibit 10.2 to the 2017 Q3 10-Q). +
Form of 2017 Performance-based Restricted Stock Unit Agreement under the 2016 Incentive Plan for certain
officers other than the Chief Executive Officer and Chief Legal Officer (incorporated by reference to Exhibit
10.3 to the 2017 Q3 10-Q). +
Form of Restricted Stock Units Agreement under the 2016 Incentive Plan for Nonemployee Directors
(incorporated by reference to Exhibit 10.4 to the 2017 Q3 10-Q). +
Form of Nonqualified Stock Option Agreement under the 2016 Incentive Plan for Nonemployee Directors
(incorporated by reference to Exhibit 10.5 to the 2017 Q3 10-Q). +
HSN, Inc. Second Amended and Restated 2008 Stock and Annual Incentive Plan (incorporated by reference to
Exhibit 10.13 to HSN, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed on
February 20, 2014 (File No. 01-34061). +
HSN, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Annex A of HSN, Inc.’s 2017 Proxy
Statement on Schedule 14A as filed on April 10, 2017 (File No. 01-34061). +
Form of Election Form with respect to December 2017 Option Exchange Proposal for participants
(incorporated by reference to Exhibit 10.57 the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2017 filed on March 1, 2018 (File No. 001-33982)). +
Voting Agreement, dated as of April 4, 2017, by and among Liberty Interactive Corporation, General
Communication, Inc., John C. Malone and Leslie Malone (incorporated by reference to Annex F to the
Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017 (File No. 001-33982)).
+
Voting Agreement, dated as of April 4, 2017, by and among Liberty Interactive Corporation, General
Communication, Inc., John W. Stanton and Theresa E. Gillespie (incorporated by reference to Annex G to the
Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017 (File No. 001-33982)).
Voting Agreement, dated as of April 4, 2017, by and among Liberty Interactive Corporation, General
Communication, Inc., Ronald A. Duncan and Dani Bowman (incorporated by reference to Annex H to the
Registrant’s Definitive Proxy Statement on Schedule 14A filed on December 29, 2017 (File No. 001-33982)).
IV-6
Table of Contents
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
Letter Agreement between Liberty Interactive Corporation and Liberty Media Corporation relating to the
Services Agreement dated September 23, 2011 (incorporated by reference to Exhibit 10.60 to Liberty Media
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed on February 28,
2018 (File No. 001-35707)).
Amendment, dated March 13, 2018, of certain Liberty Interactive Corporation incentive plans (incorporated by
reference to Exhibit 10.4 to the Liberty 2018 Q1 10-Q).+
Tax Sharing Agreement, dated as of March 9, 2018, by and between Liberty Interactive Corporation and GCI
Liberty, Inc. (incorporated by reference to Exhibit 10.1 to GCI Liberty, Inc’s Current Report on Form 8-K filed
on March 14, 2018 (File No. 001-38385) (the “GCI March 8-K”)).
Indemnification Agreement, dated as of March 9, 2018, by and among Liberty Interactive Corporation, GCI
Liberty, Inc., Liberty Interactive LC and LV Bridge, LLC (incorporated by reference to Exhibit 10.2 to the GCI
March 8-K).
Performance-Based Restricted Stock Unit Award Agreement under the Qurate Retail, Inc. 2016 Omnibus
Incentive Plan for Michael George (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2018 filed on November 9, 2018 (File No. 001-
33982) (the “Liberty 2018 Q3 10-Q”)).+
Nonqualified Stock Option Agreement under the Qurate Retail, Inc. 2016 Omnibus Incentive Plan for Michael
George (incorporated by reference to Exhibit 10.2 to the Liberty 2018 Q3 10-Q).+
Indenture, dated September 13, 2018, by and among QVC, Inc., Affiliate Investment, Inc., Affiliate Relations
Holdings, Inc., AMI 2, Inc., ER Marks, Inc., QVC Global Holdings I, Inc., QVC Global Holdings II, Inc.,
QVC Rocky Mount, Inc., QVC San Antonio, LLC and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.1 to QVC, Inc.’s Form 8-A filed on September 13, 2018 (File No. 001-
38654) (the “QVC Form 8-A”)).
First Supplemental Indenture, dated September 13, 2018, by and among QVC, Inc., Affiliate Investment, Inc.,
Affiliate Relations Holdings, Inc., AMI 2, Inc., ER Marks, Inc., QVC Global Holdings I, Inc., QVC Global
Holdings II, Inc., QVC Rocky Mount, Inc., QVC San Antonio, LLC and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.2 to the QVC Form 8-A).
10.64
Form of QVC, Inc. 6.375% Senior Secured Notes due 2067 (incorporated by reference to Exhibit 4.3 to the
QVC Form 8-A).
21
Subsidiaries of Qurate Retail, Inc.*
23.1
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
Reconciliation of Qurate Retail, Inc. Net Assets and Net Earnings to Liberty Interactive LLC Net Assets and
Net Earnings. **
101.INS XBRL Instance Document.*
101.SCH XBRL Taxonomy Extension Schema Document.*
101.CAL XBRL Taxonomy Calculation Linkbase Document.*
IV-7
Table of Contents
101.LAB XBRL Taxonomy Label Linkbase Document.*
101.PRE XBRL Taxonomy Presentation Linkbase Document.*
101.DEF XBRL Taxonomy Definition Document.*
* Filed herewith.
** Furnished herewith.
+ This document has been identified as a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary.
Not applicable.
IV-8
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, 2019
Date: February 28, 2019
QURATE RETAIL, INC.
By /s/Michael A. George
Michael A. George
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/Gregory B. Maffei
Gregory B. Maffei
/s/Michael A. George
Michael A. George
/s/Mark D. Carleton
Mark D. Carleton
/s/Richard N. Barton
Richard N. Barton
/s/John C. Malone
John C. Malone
/s/M. Ian G. Gilchrist
M. Ian G. Gilchrist
/s/Evan D. Malone
Evan D. Malone
Chairman of the Board and Director
February 28, 2019
Director, Chief Executive Officer
and President
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Director
Director
Director
Director
IV-9
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
Table of Contents
/s/David E. Rapley
David E. Rapley
/s/Larry E. Romrell
Larry E. Romrell
Andrea L. Wong
/s/Mark Vadon
Mark Vadon
/s/Fiona P. Dias
Fiona P. Dias
Director
Director
Director
Director
Director
IV-10
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
A table of subsidiaries of Qurate Retail, Inc. 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, 2018
Exhibit 21
1227844 Ontario Ltd.
Entity Name
Domicile
Ontario
Affiliate Distribution & Mktg., Inc. (fka Affiliate Sales & Marketing, Inc.)
Affiliate Investment, Inc.
Affiliate Relations Holdings, Inc.
AMI 2, Inc.
AST Sub, Inc.
Ballard Designs, Inc.
California Voices, LLC (fka QVC Voices, LLC)
CDirect Mexico I, Inc.
CDirect Mexico II, Inc.
CFF Operations, LLC
Cinmar, LLC
Contract Décor, Inc.
Cornerstone Brands, Inc.
Cornerstone Shared Services, LLC (fka Cornerstone Services, Inc.)
Diamonique Canada Holdings, Inc.
DMS DE, Inc.
ER Development International, Inc. (dba QVC International Development)
ER Marks, Inc.
DE
DE
DE
DE
DE
GA
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
PA
DE
Frontgage Marketing, Inc.
Garnet Hill, Inc.
GC Marks, Inc. (fka TATV, Inc.)
H.O.T. Home Order Television Belgium S.A.
H.O.T Networks Holdings (Delaware) LLC
Home Shopping Espanol (Mexico) S. de R.L. de CV
Home Shopping Espanol Servicios (Mexico) S. de R.L. de CV
Home Shopping Network En Espanol, L.P.
Home Shopping Network En Espanol, L.L.C.
HSN Catalog Services, Inc.
HSN Holding LLC
HSN Improvments LLC
HSN of Nevada LLC
HSN, Inc.
HSNi, LLC
IC Marks, Inc.
IM Experience, Inc.
Influence Marketing Corp (dba QVC @ theMall)
Influence Marketing Services, Inc.
Ingenious Designs LLC
Innovative Retailing, Inc.
Liberty Interactive LLC
Liberty QVC Holding, LLC
Liberty USA Holdings, LLC
NLG Merger Corp.
DE
NH
DE
Belgium
DE
Mexico
Mexico
DE
DE
DE
DE
DE
DE
DE
DE
DE
PA
Nova Scotia
Ontario
DE
DE
DE
DE
DE
DE
NSTBC, 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)
QRI Cornerstone, Inc.
Qurate HCF Investor, LLC
Qurate Retail Group, Inc.
Qurate TCF Investor, LLC
QVC (Barbados) International Finance SRL LLC
QVC Britain
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.
QVC China Holdings Limited
QVC China Licensing, Inc.(fka AI 2, Inc.)
QVC China, Inc.
QVC Delaware LLC (fka QVC Delaware, Inc.)
QVC Deutschland GP, Inc.
QVC eDistribution LLC & Co. KG (fka QVC eDistribution Inc. & Co.
KG)
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
Barbados
UK
DE
Germany
Germany
DE
Cayman Islands
VA
Hong Kong
DE
DE
DE
DE
Germany
QVC eService LLC & Co. KG (fka QVC eService Inc. & Co. KG)
QVC France Holdings, S.à r.l. (fka QVC Brazil Holdings I, S.à r.l.)
QVC France SAS
QVC Germany I S.à r.l. (fka QVC Germany I, Inc.; QVC Germany I LLC)
QVC Germany II S.à r.l. (fka QVC Germany II, Inc.; QVC German II
LLC)
QVC Global DDGS, Inc.
QVC Global Holdings I, Inc.
QVC Global Holdings II, Inc.
QVC Grundstücksverwaltungs GmbH
QVC Handel S.à r.l. & Co. KG (fka QVC International Management LLC
& 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 Holdings S.à r.l.
QVC International SCS (fka QVC International LLC; QVC International,
Inc.; QVC International Ltd.)
QVC International Management GP S.à r.l. (fka QVC International
Management GP LLC)
QVC Italia S.r.l.
QVC Italy Holdings, LLC
QVC Japan Services, LLC (fka QVC Japan Services, Inc.)
QVC Japan, Inc.
QVC Mexico II, Inc.
Germany
Luxembourg
France
Luxembourg
Luxembourg
DE
DE
DE
Germany
Germany
DE
Spain
DE
China
Luxembourg
Luxembourg
Luxembourg
Italy
DE
DE
Japan
DE
QVC Mexico III, Inc.
QVC Mexico, Inc.
QVC Northeast LLC
QVC of Thailand, Inc.
QVC Ontario Holdings, LLC
QVC Ontario, LLC
QVC Poland Global Services sp. z o.o.
QVC Realty, Inc.
QVC Rocky Mount, Inc.
QVC RS Naples, Inc.
QVC San Antonio, LLC (fka QVC San Antonio, Inc.)
QVC Satellite, Inc.
QVC (Shanghai) Management Co., Ltd
QVC Shop International, Inc. (fka EZShop International, Inc.)
QVC St. Lucie, Inc.
QVC STT Holdings, LLC
QVC Suisse Finance GmbH
QVC Suisse Holdings GmbH
DE
DE
DE
DE
DE
DE
Poland
PA
NC
FL
TX
Japan
China
DE
FL
DE
Switzerland
Switzerland
QVC Suffolk, LLC (fka QVC Suffolk, Inc.; CVN Distribution Co., Inc.;
C.O.M.B. Distribution Co.)
QVC Trading (Shanghai) Co., Ltd.
QVC Trading (Shenzhen) Co., Ltd.
QVC UK (formerly QVC)
QVC UK Holdings Limited
QVC Vendor Development, Inc.
VA
China
China
England-Wales
England-Wales
DE
QVC, Inc.
QVC-QRT, Inc.
RQ Holdings Corp
RS Marks, Inc.
RS Mebane, Inc.
RS Myrtle Beach, Inc.
Savor North Carolina, Inc.
Send the Trend, Inc.
The Cornerstone Brands Group, Inc.
The Cornerstone Holdings Group, Inc.
TOBH, Inc.
TSO Operations, Inc.
TTA Operations, Inc.
Triple Z Logistics, Inc.
Ventana Television Holdings, Inc.
Ventana Television, Inc.
zulily Australia Pty, Ltd.
zulily Canada, Inc.
zulily Hong Kong Limited
zulily (Shenzhen) Commercial Consulting Co., Ltd.
zulily Ireland Limited
zulily UK Ltd.
zulily, llc (fka Ziggy Merger Sub, LL and zulily, Inc.)
DE
DE
Nova Scotia
DE
NC
SC
NC
DE
DE
DE
DE
CA
DE
DE
DE
DE
Australia
British Columbia
Hong Kong
China
Ireland
UK
DE
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Qurate Retail, Inc.:
We consent to the incorporation by reference in the following registration statements of Qurate Retail, Inc. of our reports
dated February 28, 2019, with respect to the consolidated balance sheets of Qurate Retail, Inc. and subsidiaries as of
December 31, 2018 and 2017, 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, 2018, and the related notes, and the
effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31,
2018 annual report on Form 10‑K of Qurate Retail, Inc.
Our report dated February 28, 2019, on the consolidated financial statements refers to a change in the method of accounting
for revenue recognition.
Our report dated February 28, 2019, on the effectiveness of internal control over financial reporting as of December 31, 2018,
expresses our opinion that Qurate Retail, Inc. and subsidiaries did not maintain effective internal control over financial
reporting as of December 31, 2018 because of the effect of material weaknesses on the achievement of the objectives of the
control criteria and contains an explanatory paragraph that states the following material weaknesses have been identified and
included in management’s assessment:
Information technology general controls (ITGCs) were not designed and operating effectively to ensure (i)
that access to applications and data, and the ability to make program and job changes, were adequately
restricted to appropriate personnel and (ii) that the activities of individuals with access to modify data and
make program and job changes were appropriately monitored. Our business process controls (automated
and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could
have been adversely impacted. Further, certain review controls intended to ensure revenue is recorded
completely and accurately in the UK were not deemed effective.
Description
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
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
333-176989
Liberty Media 401(k) Savings Plan
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
333-177840
333-177841
333-177842
333-184901
333-184904
333-184902
333-201010
333-202436
333-207326
333-209872
333-210662
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 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 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
333-222062
Liberty Interactive Corporation 2016 Omnibus Incentive Plan
333-222344
HSN, Inc. Second Amended and Restated 2008 Stock and Annual
Incentive Plan and HSN, Inc. 2017 Omnibus Incentive Plan
Denver, Colorado
February 28, 2019
/s/ KPMG LLP
Exhibit 31.1
I, Michael A. George, certify that:
1. I have reviewed this annual report on Form 10-K of Qurate Retail, Inc.;
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, 2019
/s/ MICHAEL A. GEORGE
Michael A. George
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 Qurate Retail, Inc.;
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, 2019
/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 Qurate Retail, Inc., 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, 2018 (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, 2019
Date: February 28, 2019
/s/ MICHAEL A. GEORGE
Michael A. George
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.
Qurate Retail, Inc.
Reconciliation of Qurate Retail, Inc. ("Qurate Retail") Net Assets and
Net Earnings to Liberty Interactive LLC ("Liberty LLC") Net Assets and Net Earnings
Exhibit 99.1
December 31, 2018
(unaudited)
amounts in millions
Qurate Retail Net Assets
Reconciling items:
zulily, llc ("zulily") net assets
Cornerstone Brands, Inc. ("Cornerstone") net assets (1)
Equity investment in Cornerstone held by Liberty LLC (1)
Tax sharing agreement with GCI Liberty, Inc.
Liberty LLC Net Assets
Qurate Retail Net Earnings
Reconciling items:
zulily net (earnings) loss
Cornerstone net (earnings) loss (1)
Cornerstone equity method investment share of earnings (loss)
GCI Liberty, Inc. tax sharing expense
Liberty LLC Net Earnings
$
$
$
$
5,744
(1,517)
(242)
32
103
4,120
964
66
28
11
(32)
1,037
(1) On December 29, 2017, Qurate Retail acquired the approximate remaining 62% of HSN, Inc. (which includes its
televised shopping business “HSN” and its catalog retail business “Cornerstone”) it did not already own. On
December 31, 2018, Qurate Retail transferred their 100% ownership interest in HSN to QVC, Inc. through a
transaction amongst entities under common control and based on the guidance for accounting for transactions
amongst entities under common control HSN’s results have been excluded for the entire period. Liberty LLC
continues to hold 38% of Cornerstone and accounts for its ownership in Cornerstone as an equity method
investment.