Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Qurate Retail, Inc. | lint-20170331ex99237294d.htm |
| EX-32 - EX-32 - Qurate Retail, Inc. | lint-20170331xex32.htm |
| EX-31.2 - EX-31.2 - Qurate Retail, Inc. | lint-20170331ex312359e2b.htm |
| EX-31.1 - EX-31.1 - Qurate Retail, Inc. | lint-20170331ex311fe7bc8.htm |
| 10-Q - 10-Q - Qurate Retail, Inc. | lint-20170331x10q.htm |
Exhibit 99.1
Unaudited Attributed Financial Information for Tracking Stock Groups
The following tables present our assets and liabilities as of March 31, 2017, revenue and expenses for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016. The tables further present our assets, liabilities, revenue, expenses and cash flows that are attributed to the QVC Group and the Ventures Group, respectively. The financial information in this Exhibit should be read in conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2017 included in this Quarterly Report on Form 10-Q.
The QVC Group common stock is intended to reflect the separate performance of our QVC Group which is comprised of our consolidated subsidiaries, QVC, Inc. (“QVC”) and zulily, llc (“zulily”), and our approximate 38% interest in HSN, Inc. (“HSN”). Liberty Ventures common stock is intended to reflect the separate performance of our Ventures Group which is comprised primarily of our interests in Evite, Inc. (“Evite”), CommerceHub, Inc. (“CommerceHub”) (through July 22, 2016) (see note 3 of the accompanying condensed consolidated financial statements) and Bodybuilding.com, LLC ("Bodybuilding") (through November 4, 2016) (see note 3 of the accompanying condensed consolidated financial statements) (collectively, the “Digital Commerce businesses”). The Ventures Group also holds ownership interests in FTD Companies, Inc. (“FTD”), HSN and LendingTree, Inc. (“LendingTree”), which we account for as equity method investments; an interest in Liberty Broadband Corporation (“Liberty Broadband”), which we account for at fair value; and investments and related financial instruments in public companies such as Charter Communications, Inc. (“Charter”), ILG, Inc. (“ILG”) and Time Warner Inc. (“Time Warner”), which are accounted for at their respective fair market values.
As discussed in note 1 of the accompanying condensed consolidated financial statements, on July 22, 2016, Liberty completed the spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned subsidiary, CommerceHub. See discussion in note 3 of the accompanying condensed consolidated financial statements regarding discontinued operations treatment for the CommerceHub Spin-Off.
As discussed in note 1 of the accompanying condensed consolidated financial statements, on November 4, 2016, Liberty completed the split-off (the “Expedia Holdings Split-Off”) of Liberty Expedia Holdings, Inc. (“Expedia Holdings”). At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia, Inc., Liberty’s former wholly-owned subsidiary Bodybuilding and $350 million in indebtedness. See discussion in note 3 of the accompanying condensed consolidated financial statements regarding discontinued operations treatment for the Expedia Holdings Split-Off.
As discussed in note 2 of the accompanying condensed consolidated financial statements, on April 4, 2017, Liberty entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement” and the transactions contemplated thereby, the “Transactions”) with General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty (“LI LLC”), whereby Liberty will acquire GCI through a reorganization in which certain Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI. Liberty and LI LLC will contribute to GCI Liberty (as defined below) its entire equity interest in Liberty Broadband, Charter and LendingTree, together with the Evite operating business and certain other assets and liabilities (including, subject to certain conditions, Liberty’s equity interest in FTD), in exchange for (a) the issuance to LI LLC of (i) a number of shares of reclassified GCI Class A Common Stock and a number of shares of reclassified GCI 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 outstanding on the closing date of the Contribution, respectively, (ii) certain exchangeable debentures and (iii) cash, and (b) the assumption of certain liabilities by GCI Liberty (the “Contribution”).
Liberty will then effect a tax-free separation of its controlling interest in the combined company (to be named GCI Liberty, Inc. (“GCI Liberty”)) to the holders of Liberty Ventures common stock in full redemption of all outstanding shares of such stock, leaving QVC Group common stock as the only outstanding common stock of Liberty. Holders of GCI Class A Common Stock and GCI Class B Common Stock each will receive (i) 0.63 of a share of reclassified GCI Class A Common Stock and (ii) 0.20 of a share of new GCI Series A preferred stock in exchange for each share of their existing GCI stock. The exchange ratios were determined based on total consideration of $32.50 per share for the existing GCI common stock, comprised of $27.50 per share in reclassified GCI Class A Common Stock and $5.00 per share in newly issued GCI Preferred Stock, and a Liberty Ventures reference price of $43.65 (with no premium paid for shares of GCI Class B Common Stock). The Series A preferred shares will accrue dividends at an initial rate of 5% per annum (which would increase to 7% in connection with a future reincorporation of GCI Liberty in Delaware) and will be redeemable upon the 21st anniversary of the closing.
At the closing of the Transactions, Liberty will reattribute certain assets and liabilities from the Ventures Group to the QVC Group (the “Reattribution”). The reattributed assets and liabilities, if effected as of the date hereof, would include cash, Liberty’s interest in ILG, Inc., certain green energy investments, LI LLC’s exchangeable debentures (other than its outstanding 1.75% Exchangeable Debentures due 2046 that are exchanged for mirror debentures of GCI in an exchange offer to be conducted prior to the closing of the Transactions), and certain tax benefits. Liberty will complete the Reattribution using similar valuation methodologies to those used in connection with its previous reattributions, including taking into account the advice of its financial advisor. The Transactions are expected to be consummated during the first quarter of 2018, subject to the satisfaction of customary closing conditions, including receipt of regulatory approval and the requisite stockholder approvals.
Notwithstanding the following attribution of assets, liabilities, revenue, expenses and cash flows to the QVC Group and the Ventures Group, our tracking stock structure does not affect the ownership or the respective legal title to our assets or responsibility for our liabilities. We and our subsidiaries are each responsible for our respective liabilities. Holders of QVC Group common stock and Liberty Ventures common stock are holders of our common stock and are subject to risks associated with an investment in our company and all of our businesses, assets and liabilities. The issuance of QVC Group common stock and Liberty Ventures common stock does not affect the rights of our creditors or creditors of our subsidiaries.
2
SUMMARY ATTRIBUTED FINANCIAL DATA
QVC Group
|
|
|
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
amounts in millions |
|
|||
|
Summary balance sheet data: |
|
|
|
|
|
|
|
Current assets |
|
$ |
2,440 |
|
2,642 |
|
|
Investments in affiliates, accounted for using the equity method |
|
$ |
233 |
|
224 |
|
|
Intangible assets not subject to amortization, net |
|
$ |
9,347 |
|
9,325 |
|
|
Total assets |
|
$ |
14,040 |
|
14,357 |
|
|
Long-term debt, including current portion |
|
$ |
6,184 |
|
6,375 |
|
|
Deferred income tax liabilities |
|
$ |
1,111 |
|
1,116 |
|
|
Net assets attributable to QVC Group common stock shareholders |
|
$ |
4,830 |
|
4,860 |
|
|
|
Three months ended |
|
|||
|
|
March 31, |
|
|||
|
|
2017 |
|
2016 |
|
|
|
|
amounts in millions |
|
|||
|
Summary operations data: |
|
|
|
|
|
|
Revenue |
$ |
2,323 |
|
2,367 |
|
|
Cost of sales |
|
1,505 |
|
1,535 |
|
|
Operating expenses |
|
148 |
|
153 |
|
|
Selling, general and administrative expenses (1) |
|
237 |
|
264 |
|
|
Depreciation and amortization |
|
207 |
|
209 |
|
|
Operating income (loss) |
|
226 |
|
206 |
|
|
Interest expense |
|
(75) |
|
(76) |
|
|
Share of earnings (losses) of affiliates, net |
|
14 |
|
21 |
|
|
Realized and unrealized gains (losses) on financial instruments, net |
|
(1) |
|
(1) |
|
|
Other income (expense), net |
|
(2) |
|
5 |
|
|
Income tax benefit (expense) |
|
(59) |
|
(53) |
|
|
Net earnings (loss) |
|
103 |
|
102 |
|
|
Less net earnings (loss) attributable to noncontrolling interests |
|
12 |
|
8 |
|
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders |
$ |
91 |
|
94 |
|
|
(1) |
Includes stock-based compensation of $12 million and $18 million for the three months ended March 31, 2017 and 2016, respectively. |
3
SUMMARY ATTRIBUTED FINANCIAL DATA (Continued)
Ventures Group
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
amounts in millions |
|
|||
|
Summary balance sheet data: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
442 |
|
487 |
|
|
Investments in available-for-sale securities and other cost investments |
|
$ |
2,181 |
|
1,918 |
|
|
Investments in affiliates, accounted for using the equity method |
|
$ |
334 |
|
357 |
|
|
Investment in Liberty Broadband measured at fair value |
|
$ |
3,688 |
|
3,161 |
|
|
Total assets |
|
$ |
6,718 |
|
5,998 |
|
|
Long-term debt, including current portion |
|
$ |
1,746 |
|
1,667 |
|
|
Deferred income tax liabilities |
|
$ |
2,800 |
|
2,520 |
|
|
Net assets attributable to Liberty Ventures common stock shareholders |
|
$ |
2,332 |
|
1,912 |
|
|
|
|
Three months ended |
|
|||
|
|
|
March 31, |
|
|||
|
|
|
2017 |
|
2016 |
|
|
|
|
|
amounts in millions |
|
|||
|
Summary operations data: |
|
|
|
|
|
|
|
Revenue |
|
$ |
4 |
|
143 |
|
|
Cost of sales |
|
|
— |
|
91 |
|
|
Operating |
|
|
3 |
|
17 |
|
|
Selling, general and administrative expenses (1) |
|
|
13 |
|
44 |
|
|
Depreciation and amortization |
|
|
1 |
|
8 |
|
|
Operating income (loss) |
|
|
(13) |
|
(17) |
|
|
Interest expense |
|
|
(15) |
|
(17) |
|
|
Share of earnings (losses) of affiliates, net |
|
|
(41) |
|
(18) |
|
|
Realized and unrealized gains (losses) on financial instruments, net |
|
|
702 |
|
(6) |
|
|
Other, net |
|
|
3 |
|
33 |
|
|
Income tax benefit (expense) |
|
|
(220) |
|
15 |
|
|
Earnings (loss) from continuing operations |
|
|
416 |
|
(10) |
|
|
Earnings (loss) from discontinued operations, net of taxes |
|
|
— |
|
(16) |
|
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders |
|
$ |
416 |
|
(26) |
|
|
(1) |
Includes stock-based compensation of $4 million and $13 million for the three months ended March 31, 2017 and 2016, respectively. |
4
March 31, 2017
(unaudited)
|
|
|
Attributed (note 1) |
|
|
|
|||
|
|
|
QVC |
|
Ventures |
|
Consolidated |
|
|
|
|
|
Group |
|
Group |
|
Liberty |
|
|
|
|
|
amounts in millions |
|
|||||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
379 |
|
442 |
|
821 |
|
|
Trade and other receivables, net |
|
|
933 |
|
36 |
|
969 |
|
|
Inventory, net |
|
|
1,050 |
|
— |
|
1,050 |
|
|
Other current assets |
|
|
78 |
|
2 |
|
80 |
|
|
Total current assets |
|
|
2,440 |
|
480 |
|
2,920 |
|
|
Investments in available-for-sale securities and other cost investments (note 2) |
|
|
4 |
|
2,181 |
|
2,185 |
|
|
Investments in affiliates, accounted for using the equity method (note 3) |
|
|
233 |
|
334 |
|
567 |
|
|
Investment in Liberty Broadband measured at fair value (note 3) |
|
|
— |
|
3,688 |
|
3,688 |
|
|
Property and equipment, net |
|
|
1,123 |
|
1 |
|
1,124 |
|
|
Intangible assets not subject to amortization |
|
|
9,347 |
|
30 |
|
9,377 |
|
|
Intangible assets subject to amortization, net |
|
|
858 |
|
4 |
|
862 |
|
|
Other assets, at cost, net of accumulated amortization |
|
|
35 |
|
— |
|
35 |
|
|
Total assets |
|
$ |
14,040 |
|
6,718 |
|
20,758 |
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Intergroup payable (receivable) (note 7) |
|
$ |
172 |
|
(172) |
|
— |
|
|
Accounts payable |
|
|
727 |
|
— |
|
727 |
|
|
Accrued liabilities |
|
|
579 |
|
22 |
|
601 |
|
|
Current portion of debt (note 4) |
|
|
15 |
|
902 |
|
917 |
|
|
Other current liabilities |
|
|
178 |
|
2 |
|
180 |
|
|
Total current liabilities |
|
|
1,671 |
|
754 |
|
2,425 |
|
|
Long-term debt (note 4) |
|
|
6,169 |
|
844 |
|
7,013 |
|
|
Deferred income tax liabilities |
|
|
1,111 |
|
2,800 |
|
3,911 |
|
|
Other liabilities |
|
|
165 |
|
(3) |
|
162 |
|
|
Total liabilities |
|
|
9,116 |
|
4,395 |
|
13,511 |
|
|
Equity/Attributed net assets (liabilities) |
|
|
4,830 |
|
2,332 |
|
7,162 |
|
|
Noncontrolling interests in equity of subsidiaries |
|
|
94 |
|
(9) |
|
85 |
|
|
Total liabilities and equity |
|
$ |
14,040 |
|
6,718 |
|
20,758 |
|
5
STATEMENT OF OPERATIONS INFORMATION
Three months ended March 31, 2017
(unaudited)
|
|
|
Attributed (note 1) |
|
|
|
|||
|
|
|
QVC |
|
Ventures |
|
Consolidated |
|
|
|
|
|
Group |
|
Group |
|
Liberty |
|
|
|
|
|
amounts in millions |
|
|||||
|
Total revenue, net |
|
$ |
2,323 |
|
4 |
|
2,327 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,505 |
|
— |
|
1,505 |
|
|
Operating |
|
|
148 |
|
3 |
|
151 |
|
|
Selling, general and administrative, including stock-based compensation (note 5) |
|
|
237 |
|
13 |
|
250 |
|
|
Depreciation and amortization |
|
|
207 |
|
1 |
|
208 |
|
|
|
|
|
2,097 |
|
17 |
|
2,114 |
|
|
Operating income (loss) |
|
|
226 |
|
(13) |
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(75) |
|
(15) |
|
(90) |
|
|
Share of earnings (losses) of affiliates, net (note 3) |
|
|
14 |
|
(41) |
|
(27) |
|
|
Realized and unrealized gains (losses) on financial instruments, net |
|
|
(1) |
|
702 |
|
701 |
|
|
Other, net |
|
|
(2) |
|
3 |
|
1 |
|
|
|
|
|
(64) |
|
649 |
|
585 |
|
|
Earnings (loss) from continuing operations before income taxes |
|
|
162 |
|
636 |
|
798 |
|
|
Income tax benefit (expense) |
|
|
(59) |
|
(220) |
|
(279) |
|
|
Net earnings (loss) |
|
|
103 |
|
416 |
|
519 |
|
|
Less net earnings (loss) attributable to noncontrolling interests |
|
|
12 |
|
— |
|
12 |
|
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders |
|
$ |
91 |
|
416 |
|
507 |
|
6
STATEMENT OF OPERATIONS INFORMATION
Three months ended March 31, 2016
(unaudited)
|
|
|
Attributed (note 1) |
|
|
|
|||
|
|
|
QVC |
|
Ventures |
|
Consolidated |
|
|
|
|
|
Group |
|
Group |
|
Liberty |
|
|
|
|
|
amounts in millions |
|
|||||
|
Total revenue, net |
|
$ |
2,367 |
|
143 |
|
2,510 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,535 |
|
91 |
|
1,626 |
|
|
Operating |
|
|
153 |
|
17 |
|
170 |
|
|
Selling, general and administrative, including stock-based compensation (note 5) |
|
|
264 |
|
44 |
|
308 |
|
|
Depreciation and amortization |
|
|
209 |
|
8 |
|
217 |
|
|
|
|
|
2,161 |
|
160 |
|
2,321 |
|
|
Operating income (loss) |
|
|
206 |
|
(17) |
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(76) |
|
(17) |
|
(93) |
|
|
Share of earnings (losses) of affiliates, net (note 3) |
|
|
21 |
|
(18) |
|
3 |
|
|
Realized and unrealized gains (losses) on financial instruments, net |
|
|
(1) |
|
(6) |
|
(7) |
|
|
Other, net |
|
|
5 |
|
33 |
|
38 |
|
|
|
|
|
(51) |
|
(8) |
|
(59) |
|
|
Earnings (loss) from continuing operations before income taxes |
|
|
155 |
|
(25) |
|
130 |
|
|
Income tax benefit (expense) |
|
|
(53) |
|
15 |
|
(38) |
|
|
Net earnings (loss) from continuing operations |
|
|
102 |
|
(10) |
|
92 |
|
|
Earnings (loss) from discontinued operations |
|
|
— |
|
(16) |
|
(16) |
|
|
Net earnings (loss) |
|
|
102 |
|
(26) |
|
76 |
|
|
Less net earnings (loss) attributable to noncontrolling interests |
|
|
8 |
|
— |
|
8 |
|
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders |
|
$ |
94 |
|
(26) |
|
68 |
|
7
STATEMENT OF CASH FLOWS INFORMATION
Three months ended March 31, 2017
(unaudited)
|
|
|
Attributed (note 1) |
|
|
|
|||
|
|
|
QVC |
|
Ventures |
|
Consolidated |
|
|
|
|
|
Group |
|
Group |
|
Liberty |
|
|
|
|
|
amounts in millions |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
103 |
|
416 |
|
519 |
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
207 |
|
1 |
|
208 |
|
|
Stock-based compensation |
|
|
12 |
|
4 |
|
16 |
|
|
Share of (earnings) losses of affiliates, net |
|
|
(14) |
|
41 |
|
27 |
|
|
Cash receipts from return on equity investments |
|
|
7 |
|
— |
|
7 |
|
|
Realized and unrealized (gains) losses on financial instruments, net |
|
|
1 |
|
(702) |
|
(701) |
|
|
(Gains) losses on dispositions |
|
|
2 |
|
(2) |
|
— |
|
|
Deferred income tax (benefit) expense |
|
|
(25) |
|
280 |
|
255 |
|
|
Other, net |
|
|
2 |
|
1 |
|
3 |
|
|
Intergroup tax allocation |
|
|
60 |
|
(60) |
|
— |
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
Current and other assets |
|
|
244 |
|
10 |
|
254 |
|
|
Payables and other current liabilities |
|
|
(154) |
|
(8) |
|
(162) |
|
|
Net cash provided (used) by operating activities |
|
|
445 |
|
(19) |
|
426 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Investment in and loans to cost and equity investees |
|
|
— |
|
(21) |
|
(21) |
|
|
Capital expended for property and equipment |
|
|
(29) |
|
(1) |
|
(30) |
|
|
Other investing activities, net |
|
|
(1) |
|
— |
|
(1) |
|
|
Net cash provided (used) by investing activities |
|
|
(30) |
|
(22) |
|
(52) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Borrowings of debt |
|
|
499 |
|
— |
|
499 |
|
|
Repayments of debt |
|
|
(699) |
|
(5) |
|
(704) |
|
|
Repurchases of QVC Group common stock |
|
|
(152) |
|
— |
|
(152) |
|
|
Withholding taxes on net settlements of stock-based compensation |
|
|
(4) |
|
— |
|
(4) |
|
|
Other financing activities, net |
|
|
(27) |
|
1 |
|
(26) |
|
|
Net cash provided (used) by financing activities |
|
|
(383) |
|
(4) |
|
(387) |
|
|
Effect of foreign currency rates on cash |
|
|
9 |
|
— |
|
9 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
41 |
|
(45) |
|
(4) |
|
|
Cash and cash equivalents at beginning of period |
|
|
338 |
|
487 |
|
825 |
|
|
Cash and cash equivalents at end period |
|
$ |
379 |
|
442 |
|
821 |
|
8
STATEMENT OF CASH FLOWS INFORMATION
Three months ended March 31, 2016
(unaudited)
|
|
|
Attributed (note 1) |
|
|
|
|||
|
|
|
QVC |
|
Ventures |
|
Consolidated |
|
|
|
|
|
Group |
|
Group |
|
Liberty |
|
|
|
|
|
amounts in millions |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
102 |
|
(26) |
|
76 |
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
(Earnings) loss from discontinued operations |
|
|
— |
|
16 |
|
16 |
|
|
Depreciation and amortization |
|
|
209 |
|
8 |
|
217 |
|
|
Stock-based compensation |
|
|
18 |
|
13 |
|
31 |
|
|
Cash payments for stock based compensation |
|
|
— |
|
(10) |
|
(10) |
|
|
Share of losses (earnings) of affiliates, net |
|
|
(21) |
|
18 |
|
(3) |
|
|
Cash receipts from return on equity investments |
|
|
6 |
|
3 |
|
9 |
|
|
Realized and unrealized (gains) losses on financial instruments, net |
|
|
1 |
|
6 |
|
7 |
|
|
Deferred income tax (benefit) expense |
|
|
(30) |
|
36 |
|
6 |
|
|
Other, net |
|
|
(6) |
|
(30) |
|
(36) |
|
|
Intergroup tax allocation |
|
|
49 |
|
(49) |
|
— |
|
|
Intergroup tax (payments) receipts |
|
|
(54) |
|
54 |
|
— |
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
Current and other assets |
|
|
268 |
|
13 |
|
281 |
|
|
Payables and other current liabilities |
|
|
(297) |
|
(3) |
|
(300) |
|
|
Net cash provided (used) by operating activities |
|
|
245 |
|
49 |
|
294 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Cash proceeds from dispositions |
|
|
— |
|
9 |
|
9 |
|
|
Investments in and loans to cost and equity investees |
|
|
— |
|
(22) |
|
(22) |
|
|
Capital expended for property and equipment |
|
|
(43) |
|
(8) |
|
(51) |
|
|
Purchases of short term and other marketable securities |
|
|
— |
|
(116) |
|
(116) |
|
|
Sales of short term and other marketable securities |
|
|
12 |
|
413 |
|
425 |
|
|
Other investing activities, net |
|
|
(13) |
|
1 |
|
(12) |
|
|
Net cash provided (used) by investing activities |
|
|
(44) |
|
277 |
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Borrowings of debt |
|
|
515 |
|
108 |
|
623 |
|
|
Repayments of debt |
|
|
(438) |
|
(160) |
|
(598) |
|
|
Repurchases of QVC Group common stock |
|
|
(238) |
|
— |
|
(238) |
|
|
Withholding taxes on net settlements of stock-based compensation |
|
|
(7) |
|
(1) |
|
(8) |
|
|
Other financing activities, net |
|
|
(6) |
|
1 |
|
(5) |
|
|
Net cash provided (used) by financing activities |
|
|
(174) |
|
(52) |
|
(226) |
|
|
Effect of foreign currency rates on cash |
|
|
(13) |
|
— |
|
(13) |
|
|
Net cash provided (used) by discontinued operations: |
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities |
|
|
— |
|
6 |
|
6 |
|
|
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 |
|
|
— |
|
6 |
|
6 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
14 |
|
280 |
|
294 |
|
|
Cash and cash equivalents at beginning of period |
|
|
426 |
|
2,023 |
|
2,449 |
|
|
Cash and cash equivalents at end period |
|
$ |
440 |
|
2,303 |
|
2,743 |
|
9
Notes to Attributed Financial Information
(unaudited)
|
(1) |
At March 31, 2017, the QVC Group is comprised of our consolidated subsidiaries, QVC and zulily, and our approximate 38% interest in HSN, accounted for under the equity method. Accordingly, the accompanying attributed financial information for the QVC Group includes the foregoing investment, as well as the assets, liabilities, revenue, expenses and cash flows of QVC and zulily. We have also attributed certain of our debt obligations (and related interest expense) to the QVC Group based upon a number of factors, including the cash flow available to the QVC Group and its ability to pay debt service and our assessment of the optimal capitalization for the QVC Group. The specific debt obligations attributed to each of the QVC Group and the Ventures Group are described in note 4 below. In addition, we have allocated certain corporate general and administrative expenses among the QVC Group and the Ventures Group as described in note 5 below. |
At March 31, 2017, the QVC Group is primarily comprised of our merchandise-focused televised shopping programs, Internet and mobile application businesses. Accordingly, we expect that businesses that we may acquire in the future that we believe are complementary to this strategy will also be attributed to the QVC Group.
At March 31, 2017, the Ventures Group consists of all of our businesses not included in the QVC Group, including Evite, FTD, LendingTree, and Liberty Broadband and available-for-sale securities Charter, ILG, and Time Warner. Accordingly, the accompanying attributed financial information for the Ventures Group includes these investments as well as the assets, liabilities, revenue, expenses and cash flows of Evite. In addition, we have attributed to the Ventures Group all of our senior exchangeable debentures (and related interest expense). See note 4 below for the debt obligations attributed to the Ventures Group.
Any businesses that we may acquire in the future that we do not attribute to the QVC Group will be attributed to the Ventures Group.
As discussed in note 1 to the accompanying condensed consolidated financial statements, on May 18, 2016, Liberty completed a $2.4 billion investment in Liberty Broadband in connection with the merger of Charter and Time Warner Cable Inc. ("TWC"). The proceeds of this investment were used by Liberty Broadband to fund, in part, its acquisition of $5 billion of stock in the new public parent company of the combined enterprises. Liberty, along with third party investors, all of whom invested on the same terms as Liberty, purchased newly issued shares of Liberty Broadband Series C common stock at a per share price of $56.23, which was determined based upon the fair value of Liberty Broadband's net assets on a sum-of-the parts basis at the time the investment agreements were executed. Liberty's investment in Liberty Broadband was funded using cash on hand and is attributed to the Ventures Group.
As discussed in note 2 to the accompanying condensed consolidated financial statements, on April 4, 2017, Liberty entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement” and the transactions contemplated thereby, the “Transactions”) with General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty (“LI LLC”), whereby Liberty will acquire GCI through a reorganization in which certain Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI. Liberty and LI LLC will contribute to GCI Liberty (as defined below) its entire equity interest in Liberty Broadband, Charter and LendingTree, together with the Evite operating business and certain other assets and liabilities (including, subject to certain conditions, Liberty’s equity interest in FTD), in exchange for (a) the issuance to LI LLC of (i) a number of shares of reclassified GCI Class A Common Stock and a number of shares of reclassified GCI 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 outstanding on the closing date of the Contribution, respectively, (ii) certain exchangeable debentures and (iii) cash, and (b) the assumption of certain liabilities by GCI Liberty (the “Contribution”).
Liberty will then effect a tax-free separation of its controlling interest in the combined company (to be named GCI Liberty, Inc. (“GCI Liberty”)) to the holders of Liberty Ventures common stock in full redemption of all outstanding
10
Notes to Attributed Financial Information
(unaudited)
shares of such stock, leaving QVC Group common stock as the only outstanding common stock of Liberty. Holders of GCI Class A Common Stock and GCI Class B Common Stock each will receive (i) 0.63 of a share of reclassified GCI Class A Common Stock and (ii) 0.20 of a share of new GCI Series A preferred stock in exchange for each share of their existing GCI stock. The exchange ratios were determined based on total consideration of $32.50 per share for the existing GCI common stock, comprised of $27.50 per share in reclassified GCI Class A Common Stock and $5.00 per share in newly issued GCI Preferred Stock, and a Liberty Ventures reference price of $43.65 (with no premium paid for shares of GCI Class B Common Stock). The Series A preferred shares will accrue dividends at an initial rate of 5% per annum (which would increase to 7% in connection with a future reincorporation of GCI Liberty in Delaware) and will be redeemable upon the 21st anniversary of the closing.
At the closing of the Transactions, Liberty will reattribute certain assets and liabilities from the Ventures Group to the QVC Group (the “Reattribution”). The reattributed assets and liabilities, if effected as of the date hereof, would include cash, Liberty’s interest in ILG, Inc., certain green energy investments, LI LLC’s exchangeable debentures (other than its outstanding 1.75% Exchangeable Debentures due 2046 that are exchanged for mirror debentures of GCI in an exchange offer to be conducted prior to the closing of the Transactions), and certain tax benefits. Liberty will complete the Reattribution using similar valuation methodologies to those used in connection with its previous reattributions, including taking into account the advice of its financial advisor. The Transactions are expected to be consummated during the first quarter of 2018, subject to the satisfaction of customary closing conditions, including receipt of regulatory approval and the requisite stockholder approvals.
11
Notes to Attributed Financial Information
(unaudited)
|
(2) |
Investments in available-for-sale securities, including non-strategic securities, and other cost investments are summarized as follows: |
|
|
|
March 31, |
|
December 31, |
|
|
|
|
|
2017 |
|
2016 |
|
|
|
|
|
amounts in millions |
|
|||
|
QVC Group |
|
|
|
|
|
|
|
Other |
|
$ |
4 |
|
4 |
|
|
Total QVC Group |
|
|
4 |
|
4 |
|
|
Ventures Group |
|
|
|
|
|
|
|
Charter |
|
|
1,754 |
|
1,543 |
|
|
ILG |
|
|
349 |
|
302 |
|
|
Other |
|
|
78 |
|
73 |
|
|
Total Ventures Group |
|
|
2,181 |
|
1,918 |
|
|
Consolidated Liberty |
|
$ |
2,185 |
|
1,922 |
|
|
(3) |
The following table presents information regarding certain equity method investments: |
|
|
|
|
|
|
|
|
|
|
|
Share of earnings (losses) |
|
||
|
|
|
March 31, 2017 |
|
Three months ended |
|
||||||||
|
|
|
Percentage |
|
Carrying |
|
Market |
|
March 31, |
|
||||
|
|
|
ownership |
|
value |
|
value |
|
2017 |
|
2016 |
|
||
|
|
|
dollar amounts in millions |
|
||||||||||
|
QVC Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSN |
|
38 |
% |
|
$ |
194 |
|
743 |
|
16 |
|
22 |
|
|
Other |
|
various |
|
|
|
39 |
|
NA |
|
(2) |
|
(1) |
|
|
Total QVC Group |
|
|
|
|
|
233 |
|
|
|
14 |
|
21 |
|
|
Ventures Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
37 |
% |
|
|
212 |
|
205 |
|
(5) |
|
(3) |
|
|
Other |
|
various |
|
|
|
122 |
|
NA |
|
(36) |
|
(15) |
|
|
Total Ventures Group |
|
|
|
|
|
334 |
|
|
|
(41) |
|
(18) |
|
|
Consolidated Liberty |
|
|
|
|
$ |
567 |
|
|
|
(27) |
|
3 |
|
Investment in Liberty Broadband
As discussed in note 1 to the accompanying condensed consolidated financial statements, in connection with the merger of Charter and TWC, on May 18, 2016, Liberty invested $2.4 billion in Liberty Broadband Series C nonvoting shares. As of March 31, 2017, Liberty has a 24% economic ownership interest in Liberty Broadband. Due to overlapping boards of directors and management, Liberty has been deemed to have significant influence over Liberty Broadband even though Liberty does not have any voting rights. Liberty has elected to apply the fair value option for its investment in Liberty Broadband as it is believed that the Company’s investors value this investment based on the trading price of Liberty Broadband. Liberty recognizes changes in the fair value of its investment in Liberty Broadband in realized and unrealized gains (losses) on financial instruments, net in the accompanying condensed consolidated statements of operations.
12
Notes to Attributed Financial Information
(unaudited)
|
(4) |
Debt attributed to the QVC Group and the Ventures Group is comprised of the following: |
|
|
|
March 31, 2017 |
|
||||
|
|
|
Outstanding |
|
Carrying |
|
||
|
|
|
principal |
|
value |
|
||
|
|
|
amounts in millions |
|
||||
|
QVC Group |
|
|
|
|
|
|
|
|
8.5% Senior Debentures due 2029 |
|
$ |
287 |
|
|
285 |
|
|
8.25% Senior Debentures due 2030 |
|
|
504 |
|
|
502 |
|
|
1% Exchangeable Senior Debentures due 2043 |
|
|
1 |
|
|
— |
|
|
QVC 3.125% Senior Secured Notes due 2019 |
|
|
400 |
|
|
399 |
|
|
QVC 5.125% Senior Secured Notes due 2022 |
|
|
500 |
|
|
500 |
|
|
QVC 4.375% Senior Secured Notes due 2023 |
|
|
750 |
|
|
750 |
|
|
QVC 4.85% Senior Secured Notes due 2024 |
|
|
600 |
|
|
600 |
|
|
QVC 4.45% Senior Secured Notes due 2025 |
|
|
600 |
|
|
599 |
|
|
QVC 5.45% Senior Secured Notes due 2034 |
|
|
400 |
|
|
399 |
|
|
QVC 5.95% Senior Secured Notes due 2043 |
|
|
300 |
|
|
300 |
|
|
QVC Bank Credit Facilities |
|
|
1,699 |
|
|
1,699 |
|
|
Other subsidiary debt |
|
|
180 |
|
|
180 |
|
|
Deferred loan costs |
|
|
|
|
|
(29) |
|
|
Total QVC Group debt |
|
|
6,221 |
|
|
6,184 |
|
|
Ventures Group |
|
|
|
|
|
|
|
|
4% Exchangeable Senior Debentures due 2029 |
|
|
435 |
|
|
290 |
|
|
3.75% Exchangeable Senior Debentures due 2030 |
|
|
436 |
|
|
284 |
|
|
3.5% Exchangeable Senior Debentures due 2031 |
|
|
333 |
|
|
324 |
|
|
0.75% Exchangeable Senior Debentures due 2043 |
|
|
1 |
|
|
3 |
|
|
1.75% Exchangeable Senior Debentures due 2046 |
|
|
750 |
|
|
845 |
|
|
Total Ventures Group debt |
|
|
1,955 |
|
|
1,746 |
|
|
Total consolidated Liberty debt |
|
$ |
8,176 |
|
|
7,930 |
|
|
Less current maturities |
|
|
|
|
|
(917) |
|
|
Total long-term debt |
|
|
|
|
$ |
7,013 |
|
13
Notes to Attributed Financial Information
(unaudited)
|
(5) |
Cash compensation expense for our corporate employees is allocated between the QVC Group and the Ventures Group based on the estimated percentage of time spent providing services for each group. On a semi-annual basis, estimated time spent will be determined through an interview process and a review of personnel duties unless transactions significantly change the composition of companies and investments in either respective group, which would require a more timely reevaluation of estimated time spent. Other general and administrative expenses will be charged directly to the groups whenever possible and are otherwise allocated based on estimated usage or some other reasonably determined methodology. Amounts allocated from the QVC Group to the Ventures Group were determined to be $6 million and $9 million for the three months ended March 31, 2017 and 2016, respectively. We note that stock compensation related to each tracking stock group is determined based on actual options outstanding for each respective tracking stock group. |
While we believe that this allocation method is reasonable and fair to each group, we may elect to change the allocation methodology or percentages used to allocate general and administrative expenses in the future.
|
(6) |
The QVC Group common stock and the Liberty Ventures common stock have voting and conversion rights under our restated charter. Following is a summary of those rights. Holders of Series A common stock of each group are entitled to one vote per share, and holders of Series B common stock of each group are entitled to ten votes per share. Holders of Series C common stock of each group, if issued, are entitled to 1/100th of a vote per share in certain limited cases and will otherwise not be entitled to vote. In general, holders of Series A and Series B common stock will vote as a single class. In certain limited circumstances, the board may elect to seek the approval of the holders of only Series A and Series B QVC Group common stock or the approval of the holders of only Series A and Series B Liberty Ventures common stock. |
At the option of the holder, each share of Series B common stock is convertible into one share of Series A common stock of the same group. At the discretion of our board, the common stock related to one group may be converted into common stock of the same series that is related to the other group.
(7)The intergroup payable (receivable) is primarily attributable to intergroup income taxes payable from the QVC Group to the Ventures Group.
14