Liberty Interactive Corporation ("Liberty Interactive") (Nasdaq:
QVCA, QVCB, LVNTA, LVNTB) today reported first quarter 2016
results. Highlights include(1):
Attributed to QVC Group
- Grew QVC consolidated revenue by 4% and
adjusted OIBDA(2) by 3% for the first quarter, excluding QVC France
start-up expenses
- QVC consolidated operating income
increased by 6%
- Grew QVC US revenue by 5% and adjusted
OIBDA(2) by 7%, taking into account new cost allocations associated
with ONE Q
- QVC US operating income increased by
14%
- QVC consolidated mobile penetration was
57% of QVC.com orders, a 935 basis point increase
- QVC US mobile penetration was 56% of
QVC.com orders, a 1,011 basis point increase
- zulily revenue grew 16% to $355 million
and adjusted OIBDA(2) grew 475% to $23 million
- zulily operating loss increased to
$(43) million, primarily as a result of approximately $56 million
of amortization of intangible assets recognized in purchase
accounting
- From February 1, 2016 through April 30,
2016, repurchased 7.7 million QVCA shares at an average price per
share of $24.98 and a total cost of $193 million
Attributed to Liberty Ventures Group
- Filed S-1s related to the separate
spin-offs of CommerceHub and Liberty Expedia Holdings
- Plan to invest $2.4 billion in Liberty
Broadband Series C shares (LBRDK) at a price of $56.23 per share
upon anticipated completion of the Charter transactions with Time
Warner Cable and Bright House
“QVC generated another strong quarter of revenue growth,
particularly in the US, and posted impressive increases in mobile
penetration of orders in the US and on a consolidated basis. zulily
started off strong in 2016 with accelerating revenue growth and a
six-fold increase in adjusted OIBDA on strong operational
execution,” said Greg Maffei, Liberty Interactive President and
CEO.
QVC GROUP – For the quarter, QVC Group's revenue
increased 22% to $2.4 billion, adjusted OIBDA increased 8% to $433
million, operating income decreased 13% to $206 million, adjusted
net income(3) decreased 13% to $176 million and net income
decreased 40% to $90 million. QVC Group’s reported GAAP results
include the zulily acquisition beginning in the fourth quarter of
2015 (see the “zulily” section below for a further discussion of
the impact of the acquisition).
QVC
“We generated very solid top-line growth, with local currency
gains in nearly every market,” said QVC President and CEO Mike
George. “We continued to benefit from our strategies and
investments to enhance and extend the reach of our commerce
platforms. We delivered double-digit gains for both consolidated
eCommerce revenue and mobile orders. Our top-line performance and
the continued expansion of our commerce platforms demonstrate how
strongly the QVC brand resonates with consumers.”
QVC's ONE Q organizational structure is allowing it to better
leverage its global scale and capabilities, to enhance its
competitive position and to create operational efficiencies.
Beginning in the first quarter of 2016, QVC began allocating
certain corporate costs for management reporting purposes
differently. Historically, QVC allocated these costs to the market
from which the services were provided. Now, as more of QVC’s costs
support initiatives in multiple markets, QVC is allocating costs to
the markets that will benefit from the expenditures. These
management cost allocations are related to certain functions, such
as merchandising, commerce platforms, information technology, human
resources, legal, finance, brand and communications, corporate
development and administration. The cost allocations (from QVC US
to QVC International) totaled approximately $9 million in the first
quarter and are expected to approximate $39 million in 2016. As a
result of the allocations, the US segment’s adjusted OIBDA margin
was positively impacted 64 basis points and the international
segment’s adjusted OIBDA margin was negatively impacted 148 basis
points in the first quarter. There was no impact to consolidated
adjusted OIBDA margin. With the completion of the ONE Q
implementation, QVC’s financial disclosure is consistent with the
way it evaluates its business performance and manages its
operations.
QVC's consolidated revenue increased 4% in the first quarter to
$2.0 billion. Adjusted OIBDA increased 2% to $415 million and
adjusted OIBDA margin declined 39 basis points. Operating income
increased 6% to $261 million. Consolidated eCommerce revenue
increased 10% to $895 million and grew to 45% of consolidated
revenue in the quarter from 42% a year ago. Mobile orders were 57%
of total eCommerce orders in the quarter, compared to 47% a year
ago. Excluding QVC France start-up expenses of $7 million,
consolidated adjusted OIBDA increased 3%.
QVC’s US revenue increased 5% to $1.4 billion in the first
quarter. Units sold increased 7%, average selling price per unit
("ASP") decreased 3% to $60.03 and returns as a percentage of gross
product revenue improved 184 basis points. The US experienced
growth in the apparel, accessories and home categories, which was
partially offset by declines in jewelry and electronics. eCommerce
revenue increased 10% to $698 million and grew to 50% of total US
revenue in the quarter from 47% a year ago. Adjusted OIBDA
increased 7% to $326 million, and adjusted OIBDA margin increased
37 basis points due to the aforementioned cost allocations from ONE
Q. Excluding the cost allocations, adjusted OIBDA increased 4% and
adjusted OIBDA margin decreased 27 basis points, primarily due to
higher freight and bad debt expenses and lower shipping and
handling revenue, which were partially offset by higher initial
margins, lower personnel costs for severance and favorable
obsolescence expense.
QVC's international revenue increased 2% to $606 million in the
first quarter. The revenue performance included the net impact of
slightly unfavorable exchange rate fluctuations. The US Dollar
strengthened against the British Pound Sterling and Euro 6% and 2%,
respectively, and weakened against the Japanese Yen 3%. On a
constant currency basis, international revenue increased 3% in the
quarter, reflecting solid gains in all markets except Japan. Units
sold increased 3%, ASP in constant currency and returns as a
percentage of gross product revenue were flat. QVC International
experienced growth in all categories except jewelry on a constant
currency basis. International eCommerce revenue increased 9% to
$197 million and grew to 33% of total international revenue in the
quarter from 30% a year ago. Adjusted OIBDA decreased 12% to $89
million. On a constant currency basis, adjusted OIBDA decreased 9%
and adjusted OIBDA margin decreased 198 basis points, primarily due
to the cost allocations from ONE Q and France start-up costs.
Excluding the cost allocations and QVC France, international
adjusted OIBDA increased 1% and adjusted OIBDA margin decreased 27
basis points, primarily due to lower initial margins, which were
partially offset by fixed cost leverage.
CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in
China, increased revenue 21% in local currency in the first
quarter. CNRS' adjusted OIBDA deficit in local currency decreased
24%, reflecting the strong sales gain, improved product margins and
fixed cost leverage. This joint venture is being accounted for as
an equity method investment, and as a result, QVC reported a $1
million reduction in net income for the quarter.
QVC's total debt, net of original issue discount, was $5.5
billion at March 31, 2016, an increase of $0.1 billion from
December 31, 2015.
zulily
“Our first quarter performance came in strong and I’m pleased
with our sales momentum in 2016,” said zulily President and CEO
Darrell Cavens. “Our merchandising and technology teams delivered
on a great customer experience by bringing in new and unique
products at incredible prices while continuing to innovate on the
site experience across platforms. I remain excited about our
continued strong operational execution and improved performance
from our shifts in marketing strategy last year. We continue to
discover new ways to leverage the partnership with QVC and believe
our continued knowledge sharing will contribute to incremental
growth in 2016 and beyond.”
Liberty Interactive acquired zulily on October 1, 2015. Prior to
the acquisition, zulily utilized a retail calendar, whereby each
fiscal year consisted of four 13-week quarters, with one extra week
added in the fourth quarter every five to six years. Upon
acquisition by Liberty Interactive, zulily changed its fiscal year
to a calendar year end on a prospective basis. As a result, the
following discussion of zulily’s results for the three months ended
March 31, 2016 includes comparisons to zulily’s results for the
three months ended March 29, 2015. In addition, zulily has
reclassified certain costs between financial statement line items
to conform with Liberty Interactive’s reporting structure for ease
of comparability for all reporting periods. zulily's stand-alone
operating results for the three months ended March 29, 2015 and
March 31, 2016 were as follows:
(amounts in millions)
Three Months Ended
March 29, 2015 March 31, 2016 Net revenue $ 307 355
Cost of sales 222 254 Gross profit 85 101
Operating expenses 11 11 SG&A expenses (excluding stock-based
compensation) 70 67 Adjusted OIBDA 4 23
Stock-based compensation 4 5 Depreciation 3 5 Amortization of
intangible assets 1 56 Operating income (loss)
$ (4 ) (43 )
zulily revenue increased 16% in the first quarter driven by
strong growth in total orders placed and partly offset by lower
average order value. Mobile orders were 62% of total orders placed
in the quarter, compared to 55% in the year prior.
Adjusted OIBDA increased 475% in the first quarter to $23
million, up from $4 million a year ago. Adjusted OIBDA margin
increased 511 basis points, primarily attributed to improved
operational efficiency in transportation and fulfillment, leverage
across the business as a result of strong top-line growth and
higher capitalized costs for software development. Q1 2015 also
included $1.2 million in restructuring expenses related to the
closure of zulily’s UK office.
Operating loss increased to $(43) million in the first quarter
from $(4) million last year. zulily’s first quarter operating loss
includes $56 million of amortization of intangible assets,
primarily recognized in purchase accounting.
Share Repurchases
From February 1, 2016 through April 30, 2016, Liberty
Interactive repurchased approximately 7.7 million Series A QVC
Group shares (Nasdaq: QVCA) at an average cost per share of $24.98
for total cash consideration of $193 million. Since the creation of
the QVC Group stock (including its predecessor, Liberty Interactive
Group) in May 2006, Liberty Interactive has repurchased shares for
aggregate cash consideration of $6.4 billion, representing
approximately 41.9% of the shares outstanding at the time of the
creation of the QVC Group stock. All repurchases up to August 9,
2012, the date on which the QVC Group stock was recapitalized to
create the Liberty Ventures Group stock, were comprised of shares
of the combined stocks. The remaining repurchase authorization as
of May 1, 2016 for QVC Group stock was approximately $665
million.
QVC Group consists of Liberty Interactive’s subsidiaries, QVC,
Inc. and zulily, llc, and Liberty Interactive’s interest in
HSN.
LIBERTY VENTURES GROUP – On November 12, 2015, Liberty
Interactive announced that its board of directors had authorized
management to pursue a plan to spin-off to holders of its Liberty
Ventures common stock shares of newly formed companies to be called
CommerceHub, Inc. (“CommerceHub”) and Liberty Expedia Holdings,
Inc. (“Liberty Expedia”). CommerceHub would be comprised of Liberty
Interactive’s Commerce Technologies, Inc. business. Liberty Expedia
would be comprised of, among other things, Liberty Interactive’s
interest in Expedia, Inc. and Liberty Interactive’s subsidiary
Bodybuilding.com, LLC and $350 million of debt.
In prior periods, Liberty Interactive voluntarily provided
financial information for the Digital Commerce businesses on an
aggregated basis. Due to the sale of Provide in 2014, Backcountry
in 2015 and Liberty Interactive’s announced intention to pursue a
plan to spin-off Bodybuilding and CommerceHub, Liberty Interactive
no longer provides separate financial information for the Digital
Commerce businesses. The Digital Commerce businesses are now
included in Corporate and Other.
Subsequent to March 31, 2016, the Liberty Ventures Group made
cash payments aggregating approximately $500 million to holders of
approximately $295 million principal value of Liberty Interactive’s
0.75% Exchangeable Senior Debentures (the “0.75% Notes”) that were
exchanged under the terms of the debentures. In addition,
contingent upon the completion of Charter’s acquisition of Time
Warner Cable (“TWC”), Liberty Ventures Group expects to make a
pass-through payment on any outstanding 0.75% Notes. The terms of
Charter’s proposed acquisition of TWC include an option for TWC
shareholders to select between $100 and $115 per share as a
component of the deal consideration. The average cash election by
TWC shareholders will be used to determine the amount that Liberty
Ventures Group passes through to the 0.75% Notes and is therefore
currently unknown (estimated range of $325 million to $375 million
based on $529 million principal value of notes outstanding). There
will be an offsetting adjustment to the exchange ratio on the 0.75%
Notes to account for this pass-through payment.
Share Repurchases
There were no repurchases of Liberty Ventures Group common stock
(Nasdaq: LVNTA) from February 1, 2016 through April 30, 2016. The
total remaining repurchase authorization for Liberty Ventures Group
stock as of May 1, 2016 was $650 million.
The businesses and assets attributed to the Liberty Ventures
Group are all of Liberty Interactive's businesses and assets other
than those attributed to the QVC Group, including its interests in
Expedia, Interval Leisure, Lending Tree and FTD, its subsidiaries
Bodybuilding.com, CommerceHub, and Evite, and minority interests in
Time Warner, Time Warner Cable and Lending Tree.
FOOTNOTES
(1) Liberty Interactive's President and CEO, Greg
Maffei, will discuss these highlights and other matters in Liberty
Interactive's earnings conference call which will begin at 12:15
p.m. (E.D.T.) on May 9, 2016. For information regarding how to
access the call, please see “Important Notice” later in this
document. (2) For a definition of adjusted OIBDA and applicable
reconciliations and a definition of adjusted OIBDA margin, see the
accompanying schedules. (3) For a definition of adjusted net income
and applicable reconciliations, see the accompanying schedules.
QVC GROUP
FINANCIAL METRICS – QUARTER
(amounts in millions) 1Q15 1Q16 % Change
Revenue QVC
US $ 1,342 $ 1,407 5 % QVC International(1) 596
606 2 % Total QVC Revenue 1,938 2,013 4 %
zulily(2) NA 355 NA Intergroup eliminations NA
(1 ) NA
Total QVC Group Revenue $ 1,938
$ 2,367 22 %
Gross Margins QVC US 36.5 % 36.0 % QVC
International(1) 38.1 % 37.3 % zulily(2) NA % 28.5 %
Adjusted OIBDA QVC US(3) $ 306 $ 326 7 % QVC
International(1)(3) 101 89 (12 ) %
Total QVC Adjusted OIBDA 407 415 2 % zulily(2) NA 23 NA Corporate
and Other (6 ) (5 ) (17 ) %
Total QVC Group
Adjusted OIBDA $ 401 $ 433
8 % Operating Income QVC
US(3) $ 177 $ 201 14 % QVC International(1)(3) 69
60 (13 ) % Total QVC Operating Income 246 261 6 %
zulily NA (43 ) NA Corporate and Other (9 ) (12 ) (33
) %
Total QVC Group Operating Income $ 237
$ 206 (13 ) %
Adjusted Net Income(4) Total QVC Group
Adjusted Net Income $ 202 $ 176
(13 ) % China JV(5)
Revenue $ 36 $ 41 14 % Adjusted OIBDA $ (2 ) $ (2 ) - %
(amounts in millions)
QVCA Shares
Outstanding
4/30/2015 4/30/2016 Outstanding A and B
shares 473 481 (amounts in millions)
Quarter ended
Quarter ended
QVCA and QVCB
Basic and Diluted Shares
3/31/2015 3/31/2016 Basic Weighted
Average Shares Outstanding ("WASO") 473 485 Potentially dilutive
Shares 7 6
Diluted WASO
480 491 (1)
Includes QVC France, QVC Germany, QVC Italy, QVC Japan and QVC UK.
(2) Includes zulily as of the beginning of the fourth quarter 2015.
(3) Includes the reallocation of $9 million in corporate costs from
QVC US to QVC International for the first quarter 2016. (4) GAAP
net income was $151 million and $90 million for the three months
ended March 31, 2015 and 2016, respectively (see reconciling
schedule 4). (5) This joint venture is being accounted for as an
equity investment.
QVC OPERATING
METRICS – QUARTER
(amounts in millions) 1Q15 1Q16 % Change
QVC -
Consolidated Total eCommerce revenue ($) $ 813 $ 895 10 % Total
eCommerce revenue (%) 42.0 % 44.5 % 251 bps Mobile % of total
eCommerce(1) 47.2 % 56.6 % 935 bps LTM Total Customers(2) 12.4 12.7
2 %
QVC - US US eCommerce revenue ($) $ 632 $ 698 10
% US eCommerce revenue (%) 47.1 % 49.6 % 252 bps Mobile % of US
eCommerce(1) 45.8 % 55.9 % 1,011 bps LTM Total Customers(2) 8.0 8.2
2 % Return Rate 20.3 % 18.5 % (184 ) bps
zulily
Mobile % of total orders 55.0 % 62.4 % 740 bps LTM Total
Customers(2) 5.0 5.0 — % (1) Based on gross US
Dollar orders. (2) LTM: Last twelve months.
NOTES
Unless otherwise noted, the foregoing discussion compares
financial information for the three months ended March 31, 2016 to
the same period in 2015.
The following financial information with respect to Liberty
Interactive's equity affiliates and available for sale securities
is intended to supplement Liberty Interactive's condensed
consolidated statements of operations which are included in its
Form 10-Q.
Fair Value of Public Holdings
(amounts in millions)
12/31/2015
3/31/2016 HSN(1) $ 1,014 $ 1,047
Total Attributed QVC
Group $ 1,014 $ 1,047
Expedia(2) $ 2,934 $ 2,545 FTD(3) 267 268 Interval Leisure Group
and Tree.com(4) 507 512 Other Public Holdings(5) 1,294
1,421
Total Attributed Liberty Ventures Group
$ 5,002 $ 4,746 (1)
Represents fair value of QVC Group's investment in HSN. In
accordance with GAAP, QVC Group accounts for this investment using
the equity method of accounting and includes this investment in its
attributed balance sheet at its historical carrying value which
aggregated $165 million and $180 million at December 31, 2015 and
March 31, 2016, respectively. (2) Represents fair value of Liberty
Ventures Group's investment in Expedia. In accordance with GAAP,
Liberty Ventures Group accounts for this investment using the
equity method of accounting and includes this investment in its
attributed balance sheet at its historical carrying value which
aggregated $927 million and $894 million at December 31, 2015 and
March 31, 2016, respectively. (3) Represents fair value of Liberty
Ventures Group's investment in FTD. In accordance with GAAP,
Liberty Ventures Group accounts for this investment using the
equity method of accounting and includes this investment in its
attributed balance sheet at its historical carrying value which
aggregated $267 million and $261 million at December 31, 2015 and
March 31, 2016, respectively. (4) Represents fair value of Liberty
Ventures Group's investments. In accordance with GAAP, Liberty
Ventures Group accounts for these investments using the equity
method of accounting and includes these investments in its
attributed balance sheet at their historical carrying values which
aggregated $118 million and $146 million at December 31, 2015 and
March 31, 2016, respectively. (5) Represents Liberty Ventures
Group's other public holdings which are accounted for at fair
value.
Cash and Debt
The following presentation is provided to separately identify
cash and liquid investments and debt information.
(amounts in millions)
12/31/2015 3/31/2016
Cash and
Liquid Investments Attributable to: QVC Group (1) $ 438 $ 440
Liberty Ventures Group(2) 2,921 2,904
Total Liberty Consolidated Cash and Liquid Investments
$ 3,359 $ 3,344
Less: Short-term marketable securities - QVC Group $ 12 $ —
Short-term marketable securities - Liberty Ventures Group 898
601
Total Liberty Consolidated Cash (GAAP)
$ 2,449 $ 2,743
Debt: Senior notes and debentures(3) $ 791 $ 791 Senior
exchangeable debentures(4) 346 346 QVC senior notes(3) 3,550 3,550
QVC bank credit facility 1,815 1,894 Other 72
72
Total Attributed QVC Group Debt $
6,574 $ 6,653 Unamortized discount, fair
market value adjustment and deferred loan costs (39 )
(38 )
Total Attributed QVC Group Debt (GAAP) $
6,535 $ 6,615 Senior
exchangeable debentures(4) $ 2,070 $ 2,040 Other 41
33
Total Attributed Liberty Ventures Group
Debt $ 2,111 $ 2,073 Fair market
value adjustment 61 188
Total
Attributed Liberty Ventures Group Debt (GAAP) $
2,172 $ 2,261 Total
Liberty Interactive Corporation Debt (GAAP) $
8,707 $ 8,876 (1)
Includes $12 million of short-term marketable securities
with an original maturity greater than 90 days as of December 31,
2015. (2) Includes $898 million and $601 million of short-term
marketable securities with an original maturity greater than 90
days as of December 31, 2015 and March 31, 2016, respectively. (3)
Face amount of Senior Notes and Debentures with no reduction for
the unamortized discount. (4) Face amount of Senior Exchangeable
Debentures with no reduction for the fair market value adjustment.
Total cash and liquid investments attributed to the QVC Group
were flat during the first quarter. Share repurchases and capital
expenditures were offset by operating cash flow and additional
borrowings. Total debt attributed to the QVC Group increased by $79
million, primarily due to additional borrowings on QVC’s credit
facility.
Total cash and liquid investments attributed to the Liberty
Ventures Group declined $17 million, primarily due to net repayment
of $52 million of attributed debt.
Important Notice: Liberty Interactive (Nasdaq: QVCA,
QVCB, LVNTA, LVNTB) President and CEO, Greg Maffei, will discuss
Liberty Interactive's earnings release in a conference call which
will begin at 12:15 p.m. (E.D.T.) on May 9, 2016. The call can be
accessed by dialing (844) 307-2219 or (678) 509-7635 at least 10
minutes prior to the start time. The call will also be broadcast
live across the Internet and archived on our website. To access the
webcast go to http://www.libertyinteractive.com/events. Links to
this press release and replays of the call will also be available
on Liberty Interactive's website.
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements about business strategies, market
potential, future financial prospects, international expansion, the
expected benefits and synergies from the acquisition of zulily, the
implementation of new marketing and fulfillment processes at
zulily, new service and product offerings, the monetization of our
non-core assets, the continuation of our stock repurchase program,
the estimated liabilities under exchangeable debentures and other
matters that are not historical facts. These forward-looking
statements involve many risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
by such statements, including, without limitation, possible changes
in market acceptance of new products or services, competitive
issues, regulatory matters affecting our businesses, continued
access to capital on terms acceptable to Liberty Interactive,
changes in law and government regulations that may impact the
derivative instruments that hedge certain of our financial risks,
the availability of investment opportunities, and market conditions
conducive to stock repurchases. These forward-looking statements
speak only as of the date of this presentation, and Liberty
Interactive expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Liberty
Interactive's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based. Please refer to the publicly filed documents of Liberty
Interactive, including the most recent Forms 10-K and 10-Q, for
additional information about Liberty Interactive and about the
risks and uncertainties related to Liberty Interactive's business
which may affect the statements made in this presentation.
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of adjusted OIBDA,
which is a non-GAAP financial measure, for Liberty Interactive, the
QVC Group, QVC (and certain of its subsidiaries), zulily and the
Liberty Ventures Group together with a reconciliation to that
entity or such businesses’ operating income, as determined under
GAAP. Liberty Interactive defines adjusted OIBDA as revenue less
cost of sales, operating expenses, and selling, general and
administrative expenses, excluding all stock-based compensation,
and excludes from that definition depreciation and amortization and
restructuring and impairment charges that are included in the
measurement of operating income pursuant to GAAP. Further, this
press release includes adjusted OIBDA margin which is also a
non-GAAP financial measure. Liberty Interactive defines adjusted
OIBDA margin as adjusted OIBDA divided by revenue.
Liberty Interactive believes adjusted OIBDA is an important
indicator of the operational strength and performance of its
businesses, including each business' 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. Because adjusted OIBDA is used
as a measure of operating performance, Liberty Interactive views
operating income as the most directly comparable GAAP measure.
Adjusted OIBDA is not meant to replace or supersede operating
income or any other GAAP measure, but rather to supplement such
GAAP measures in order to present investors with the same
information that Liberty Interactive's management considers in
assessing the results of operations and performance of its assets.
Please see the attached schedules for applicable
reconciliations.
In addition, this presentation includes references to adjusted
net income, which is a non-GAAP financial measure, for QVC Group.
Liberty Interactive defines adjusted net income as net income,
excluding the impact of purchase accounting amortization (net of
deferred tax benefit).
Liberty Interactive believes adjusted net income is an important
indicator of financial performance, in particular for QVC Group,
due to the impact of purchase accounting amortization. Because
adjusted net income is used as a measure of overall financial
performance, Liberty Interactive views net income as the most
directly comparable GAAP measure. Adjusted net income is not meant
to replace or supersede net income or any other GAAP measure, but
rather to supplement such GAAP measures in order to present
investors with a valuable supplemental metric of financial
performance. Please see the attached schedules for a reconciliation
of adjusted net income to net income (loss) calculated in
accordance with GAAP for QVC Group (Schedule 4).
SCHEDULE 1
The following table provides a reconciliation of QVC Group's
adjusted OIBDA to its operating income calculated in accordance
with GAAP for the three months ended March 31, 2015, June 30,
2015, September 30, 2015, December 31, 2015 and March 31, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 1Q15
2Q15 3Q15 4Q15
1Q16
QVC Group Adjusted OIBDA(1)(2) 401
445 421 620 433 Depreciation and amortization (152 ) (149 ) (141 )
(215 ) (209 ) Stock compensation expense (12 ) (12 )
(16 ) (20 ) (18 )
Operating Income
$ 237 $ 284 $
264 $ 385 $ 206
(1) Includes zulily beginning with the
fourth quarter of 2015. (2) zulily’s results for the fourth quarter
2015 include the impact of a $17 million non-cash, one-time
reduction in deferred revenue.
SCHEDULE 2
The following table provides a reconciliation of adjusted OIBDA
for QVC (and certain of its subsidiaries) and zulily (beginning
with the fourth quarter of 2015) to that entity or such businesses'
operating income (loss) calculated in accordance with GAAP for the
three months ended March 31, 2015, June 30, 2015, September 30,
2015, December 31, 2015 and March 31, 2016, respectively. As there
are no material reconciling items between adjusted OIBDA and
operating income for the QVC China joint venture for the referenced
periods, no reconciliation has been provided.
QUARTERLY SUMMARY
(amounts in millions) 1Q15
2Q15 3Q15 4Q15
1Q16
QVC
Group
QVC Adjusted OIBDA QVC US $ 306 $ 349 $ 333 $ 479 $ 326 QVC
International 101 100 97 129 89 Consolidated QVC adjusted
OIBDA 407 449 430 608 415 Depreciation and amortization (153 ) (148
) (141 ) (146 ) (148 ) Stock compensation (8 ) (7 )
(9 ) (7 ) (6 )
Operating Income
$ 246 $ 294 $
280 $ 455 $ 261
zulily Adjusted OIBDA(1) $ NA $ NA $ NA $ 21 $
23 Depreciation and amortization NA NA NA (69 ) (61 ) Stock
compensation NA NA NA (5 ) (5 )
Operating Income $ NA $ NA
$ NA $ (53 ) $ (43
) (1) Includes zulily as of the
beginning of the fourth quarter 2015. Fourth quarter 2015 adjusted
OIBDA includes the impact of a $17 million one-time, non-cash
purchase accounting reduction in deferred revenue.
SCHEDULE 3
The following table provides a reconciliation of adjusted OIBDA
for QVC Group and the Liberty Ventures Group to the Liberty
Interactive Corporation operating income (loss) calculated in
accordance with GAAP for the three months ended March 31, 2015,
June 30, 2015, September 30, 2015, December 31, 2015 and March 31,
2016, respectively.
QUARTERLY SUMMARY
(amounts in millions) 1Q15
2Q15 3Q15 4Q15
1Q16 QVC Group Adjusted OIBDA $ 401 $
445 $ 421 $ 620 $ 433 Liberty Ventures Group Adjusted OIBDA
18 14 13 14
4
Consolidated Liberty Interactive Corp. Adjusted
OIBDA $ 419 $ 459
$ 434 $ 634 $
437 Depreciation and amortization (168 ) (161 ) (150
) (224 ) (217 ) Stock compensation (15 ) (29 )
(37 ) (46 ) (31 )
Consolidated Liberty Interactive
Corp. Operating Income $ 236 $
269 $ 247 $ 364
$ 189
SCHEDULE 4
The following table provides a reconciliation of QVC Group's
adjusted net income to its net income calculated in accordance with
GAAP for the three months ended March 31, 2015, June 30, 2015,
September 30, 2015, December 31, 2015 and March 31, 2016,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 1Q15
2Q15 3Q15
4Q15 1Q16
LTM
QVC Group Net income(1) $ 151 $ 112
$ 154 $ 223 $ 90 $ 579
QVC purchase accounting amort., net
deferred tax benefit(2)
51 49 49 50 50 198
zulily purchase accounting amort., net
deferred tax benefit(3)
— — — 39 36 75 QVC Group
Adjusted net income $ 202 $ 161 $ 203 $ 312 $ 176 $ 852
QVCA/B shares outstanding as of April 30, 2016 481 Adjusted LTM
earnings per share $ 1.77 (1) Includes the
results of zulily beginning in the fourth quarter of 2015. zulily’s
results for the fourth quarter 2015 include the impact of a $17
million non-cash, one-time reduction in deferred revenue, net of
book deferred tax benefit. (2) Add-back relates to non-cash,
non-tax deductible purchase accounting amortization from Liberty
Interactive’s acquisition of QVC, net of book deferred tax benefit
(gross non-cash, non-tax deductible purchase accounting
amortization was $316 million for the twelve months ended December
31, 2015, and is applied ratably across the four quarters in each
year). (3) Add-back relates to non-cash, non-tax deductible
purchase accounting amortization from Liberty Interactive’s
acquisition of zulily, net of book deferred tax benefit.
LIBERTY INTERACTIVE CORPORATION
BALANCE SHEET INFORMATION
March 31, 2016 - (unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions
Assets Current assets: Cash and cash
equivalents $ 440 2,303 2,743 Trade and other receivables, net
1,040 54 1,094 Inventory, net 1,032 52 1,084 Short-term marketable
securities — 601 601 Other current assets 79 8 87
Total current assets
2,591 3,018
5,609 Investments in available-for-sale securities and other
cost investments 4 1,478 1,482 Investments in affiliates, accounted
for using the equity method 223 1,428 1,651 Property and equipment,
net 1,164 37 1,201 Intangible assets not subject to amortization
9,391 129 9,520 Intangible assets subject to amortization, net
1,419 38 1,457 Other assets, at cost, net of accumulated
amortization 33 5 38 Total assets
$
14,825 6,133 20,958 Liabilities and
Equity Current liabilities: Intergroup payable (receivable) $
45 (45 ) — Accounts payable 642 25 667 Accrued liabilities 576 47
623 Current portion of debt 358 2,247 2,605 Other current
liabilities 184 111 295 Total current liabilities
1,805 2,385 4,190 Long-term debt
6,257 14 6,271 Deferred income tax liabilities 1,290 2,164 3,454
Other liabilities 283 12 295 Total liabilities
9,635 4,575 14,210 Equity/Attributed
net assets (liabilities) 5,098 1,568 6,666 Noncontrolling interests
in equity of subsidiaries 92 (10 ) 82 Total liabilities and
equity
$ 14,825 6,133 20,958
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended March 31, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Net retail sales $ 2,367 143 2,510
Operating costs and expenses: Cost of sales 1,535 91 1,626
Operating, including stock-based compensation 153 17 170 Selling,
general and administrative, including stock-based compensation 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 21 (42 ) (21 ) Realized and unrealized gains (losses) on
financial instruments, net (1 ) (6 ) (7 ) Other, net 5
29 34 (51 ) (36 ) (87 ) Earnings (loss)
before income taxes 155 (53 ) 102 Income tax benefit (expense)
(57 ) 26 (31 ) Net earnings (loss) 98 (27 ) 71 Less
net earnings (loss) attributable to noncontrolling interests
8 — 8 Net earnings (loss) attributable to
Liberty stockholders $ 90 (27 ) 63
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended March 31, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Net retail sales $ 1,938 276 2,214
Operating costs and expenses: Cost of sales 1,221 194 1,415
Operating, including stock-based compensation 138 22 160 Selling,
general and administrative, including stock-based compensation 190
45 235 Depreciation and amortization 152 16
168 1,701 277 1,978 Operating
income (loss) 237 (1 ) 236 Other income (expense): Interest
expense (75 ) (20 ) (95 ) Share of earnings (losses) of affiliates,
net 24 (21 ) 3 Realized and unrealized gains (losses) on financial
instruments, net (10 ) 6 (4 ) Other, net 8 7
15 (53 ) (28 ) (81 ) Earnings (loss) from continuing
operations before income taxes 184 (29 ) 155 Income tax benefit
(expense) (24 ) 21 (3 ) Net earnings (loss) 160 (8 )
152 Less net earnings (loss) attributable to noncontrolling
interests 9 — 9 Net earnings (loss)
attributable to Liberty stockholders $ 151 (8 ) 143
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Three months ended March 31, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 98 (27 ) 71 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 209 8 217 Stock-based compensation 18 13 31
Cash payments for stock-based
compensation
— (10 ) (10 )
Excess tax benefit from stock-based
compensation
(5 ) — (5 ) Share of (earnings) losses of affiliates, net (21 ) 42
21 Cash receipts from return on equity investments 6 9 15 Realized
and unrealized gains (losses) on financial instruments, net 1 6 7
Deferred income tax (benefit) expense (30 ) 24 (6 ) Other, net (2 )
(25 ) (27 ) Intergroup tax allocation 49 (49 ) — Intergroup tax
payments (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 240 55 295
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 Liberty common stock (238 ) — (238 )
Min. withholding taxes on net settlements of stock-based comp (7 )
(1 ) (8 ) Excess tax benefit from stock-based compensation 5 — 5
Other financing activities, net (6 ) 1 (5 ) Net cash
provided (used) by financing activities (169 ) (52 ) (221 )
Effect of foreign currency rates on cash (13 ) — (13
) 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
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Three months ended March 31, 2015 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 160 (8 ) 152 Adjustments to reconcile net
earnings to net cash provided by operating activities: Depreciation
and amortization 152 16 168 Stock-based compensation 12 3 15
Cash payments for stock-based
compensation
— (2 ) (2 ) Excess tax benefit from stock-based compensation (13 )
— (13 ) Share of losses (earnings) of affiliates, net (24 ) 21 (3 )
Cash receipts from return on equity investments 7 6 13 Realized and
unrealized gains (losses) on financial instruments, net 10 (6 ) 4
Deferred income tax (benefit) expense (79 ) 25 (54 ) Other, net (9
) 1 (8 ) Intergroup tax allocation 47 (47 ) — Intergroup tax
payments (6 ) 6 — Changes in operating assets and liabilities
Current and other assets 238 20 258 Payables and other current
liabilities (268 ) (42 ) (310 ) Net cash provided (used) by
operating activities 227 (7 ) 220 CASH
FLOWS FROM INVESTING ACTIVITIES: Cash proceeds from dispositions —
(20 ) (20 ) Investments in and loans to cost and equity investees
(1 ) (44 ) (45 ) Cash receipts from return of equity investments
200 — 200 Capital expended for property and equipment (31 ) (13 )
(44 ) Purchases of short term and other marketable securities (54 )
(233 ) (287 ) Sales of short term and other marketable securities
66 247 313 Other investing activities, net (44 ) —
(44 ) Net cash provided (used) by investing activities 136
(63 ) 73 CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 351 180 531 Repayments of debt (466 ) (176 )
(642 ) Repurchases of QVC Group common stock (123 ) — (123 ) Min.
withholding taxes on net settlements of stock-based comp (12 ) 1
(11 ) Excess tax benefit from stock-based compensation 13 — 13
Other financing activities, net (8 ) 1 (7 ) Net cash
provided (used) by financing activities (245 ) 6 (239
) Effect of foreign currency rates on cash (10 ) —
(10 ) Net increase (decrease) in cash and cash equivalents
108 (64 ) 44 Cash and cash equivalents at beginning
of period 422 1,884 2,306 Cash and cash
equivalents at end period $ 530 1,820 2,350
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Liberty Interactive CorporationCourtnee Chun, (720) 875-5420
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