Liberty Interactive Corporation ("Liberty Interactive") (Nasdaq:
QVCA, QVCB, LVNTA, LVNTB) today reported second quarter 2017
results. Highlights include(1):
Attributed to QVC Group
- QVC consolidated revenue down 4% to
$2.0 billion and down 3% in constant currency
- QVC US revenue down 4%, inclusive of an
estimated 1% negative impact from system outage in second quarter
that resulted in shipment backlog into third quarter
- Operating income down 5% and adjusted
OIBDA(2) down 1%
- Adjusted OIBDA margin(2) expanded 100
basis points
- QVC International grew constant
currency(3) revenue 2%, operating income 21% and adjusted OIBDA 14%
- Adjusted OIBDA margin expansion in all
consolidated markets
- QVC consolidated mobile penetration was
63% of QVC.com orders, a 520 basis point increase
- QVC US mobile penetration was 62% of
QVC.com orders, a 490 basis point increase
- Liberty Interactive announced agreement
to acquire remaining 62% stake of HSN, Inc. (“HSNi”) not already
owned in all-stock transaction
Attributed to Liberty Ventures Group
- Advanced progress on planned
acquisition of General Communication, Inc. (“GCI”) and subsequent
split-off of combined company, GCI Liberty; received early
termination of HSR waiting period
- Purchased 450,000 additional shares of
LendingTree for $77 million and increased undiluted ownership to
27%
“QVC had a solid Q2, with revenue performance similar to Q1 and
improved adjusted OIBDA margins. We were thrilled to announce the
acquisition of HSNi, which will enhance QVC’s position as the
leading global video eCommerce retailer,” said Greg Maffei, Liberty
Interactive President and CEO. “We also continue to make good
progress on the acquisition of GCI and anticipate closing both
transactions in the fourth quarter of 2017. As previously
discussed, this will create two asset-backed stocks: QVC Group and
GCI Liberty.”
Unless otherwise noted, the following discussion compares
financial information for the three months ended June 30, 2017 to
the same period in 2016.
QVC GROUP – Approximately $10 million of corporate level
selling, general and administrative expense (“SG&A”) (including
stock-based compensation expense) was allocated to the QVC Group in
the second quarter of 2017.
On July 6, 2017, Liberty Interactive entered into an agreement
to acquire the 62% of HSNi it does not already own in an all-stock
transaction. Liberty Interactive currently owns approximately 38%
of HSNi and, upon acquisition of the remaining stake, HSNi will
become a wholly-owned subsidiary attributed to the QVC Group. HSNi
stockholders will receive fixed consideration of 1.65 shares of
Series A QVC Group common stock (“QVCA”) for every share of HSNi
common stock held. Based on the QVCA closing price as of July 5,
2017 and the number of HSNi undiluted shares outstanding as of May
1, 2017, this equates to a total enterprise value for HSNi of $2.6
billion, an equity value of $2.1 billion and consideration of
$40.36 per HSNi share.
The acquisition of HSNi is expected to be completed during the
fourth quarter of 2017 and is subject to certain customary
conditions, including, among other things, receipt of regulatory
approval and approval by a majority of the outstanding voting power
of HSNi stockholders. A voting agreement has been obtained from
Liberty Interactive to vote its HSNi shares in-favor of the
transaction. Approval of the Liberty Interactive stockholders is
not required, and is not being sought, for the HSNi
acquisition.
QVC
“We were pleased to generate strong margin expansion in the
second quarter due to our focus on cost controls and avoidance of
excessive promotional activity,” said QVC President and CEO, Mike
George. “We are executing on a number of strategies that we expect
to restore healthy growth, with a particular focus on greater
diversity and newness in our assortments. We were delighted with
the strong performance of our International segment, which was led
by QVC Japan. We look forward to welcoming the HSNi team to the QVC
family with the completion of the acquisition in the fourth
quarter, which we believe will be accretive to all of our
stakeholders.”
The following table provides QVC’s consolidated financial and
operating results for the second quarter of 2017. US Dollar
denominated results were unfavorably impacted by exchange rate
fluctuations in the second quarter. The Dollar strengthened versus
the British Pound, Euro and Japanese Yen 11%, 3% and 3%,
respectively. The following table also provides a comparison of the
year-over-year percentage change in QVC’s results in constant
currency(3) (where applicable) to the comparable figures calculated
in accordance with US GAAP for the three months ended June 30,
2017.
(amounts in millions unless otherwise noted)
2Q16 2Q17 % Change
% Change
Constant
Currency(3)
QVC - Consolidated Financial Metrics Revenue $ 2,063
$ 1,979 (4 ) % (3 ) % Operating Income $ 307 $ 306 0 % 1 %
Operating Income Margin (%) 14.9 % 15.5 % 60 bps Adjusted OIBDA $
463 $ 468 1 % 2 % Adjusted OIBDA Margin (%) 22.4 % 23.6 % 120 bps
Operating Metrics eCommerce Revenue $ 939 $ 963 3 % 4 %
eCommerce % of Total Revenue 45.5 % 48.7 % 320 bps Mobile % of
eCommerce Revenue(1) 57.9 % 63.1 % 520 bps LTM Total Customers(2)
12.7 12.6 (1 ) % (1) Based on gross US Dollar
orders. (2) LTM: Last twelve months. (3) For a definition of
constant currency financial metrics, see the accompanying
schedules.
The following table provides QVC US’s financial and operating
results for the second quarter of 2017.
(amounts in millions unless otherwise noted) 2Q16 2Q17 %
Change
QVC - US Financial Metrics Revenue $ 1,428 $
1,367 (4 ) % Gross Margin 37.6 % 37.3 % (30 ) bps Operating Income
$ 236 $ 225 (5 ) % Operating Income Margin (%) 16.5 % 16.5 % 0 bps
Adjusted OIBDA $ 363 $ 361 (1 ) % Adjusted OIBDA Margin (%) 25.4 %
26.4 % 100 bps
Operating Metrics Average Selling Price $
56.60 $ 56.05 (1 ) % Units Sold (3 ) % Return Rate(1) 18.5 % 17.9 %
(60 ) bps eCommerce Revenue $ 727 $ 746 3 % eCommerce % of Total
Revenue 50.9 % 54.6 % 370 bps Mobile % of eCommerce Revenue(2) 56.6
% 61.5 % 490 bps LTM Total Customers(3) 8.2 8.0 (2 ) % (1)
Measured as returned sales over gross shipped sales.
(2) Based on gross US Dollar orders. (3) LTM: Last twelve months.
QVC US experienced year-over-year revenue declines in all
categories except home. Operating income margin and adjusted OIBDA
margin performance primarily reflect lower bad debt, higher product
margins and higher credit card income, partially offset by higher
bonus expense, warehouse costs and depreciation.
The following table provides QVC International’s financial and
operating results for the second quarter of 2017, including the
year-over-year percentage change in QVC’s results in constant
currency(3) (where applicable) to the comparable figures calculated
in accordance with US GAAP due to the net impact of unfavorable
exchange rate fluctuations.
(amounts in millions unless otherwise noted)
2Q16 2Q17 % Change
% Change
Constant
Currency(4)
QVC - International(1) Financial Metrics
Revenue $ 635 $ 612 (4 ) % 2 % Gross Margin 38.0 % 39.1 % 110 bps
Operating Income $ 71 $ 81 14 % 21 % Operating Income Margin (%)
11.2 % 13.2 % 200 bps Adjusted OIBDA $ 100 107 7 % 14 % Adjusted
OIBDA Margin (%) 15.7 % 17.5 % 180 bps
Operating Metrics
Average Selling Price (4 ) % 1 % Units Sold 1 % eCommerce Revenue $
212 $ 217 2 % 8 % eCommerce % of Total Revenue 33.4 % 35.5 % 210
bps Mobile % of eCommerce Revenue(2) 61.7 % 68.1 % 640 bps LTM
Total Customers(3) 4.5 4.6 2 % (1) Includes
QVC France, QVC Germany, QVC Italy, QVC Japan and QVC UK. (2) Based
on gross US Dollar orders. (3) LTM: Last twelve months. (4) For a
definition of constant currency financial metrics, see the
accompanying schedules.
In the second quarter of 2017, QVC International experienced
constant currency growth in beauty, accessories and apparel, which
were partially offset by declines in home, jewelry and electronics.
Increases in operating income margin and adjusted OIBDA margin in
constant currency primarily reflect higher product margins and
lower fixed and freight costs, as well as customer service
efficiencies.
CNR Home Shopping Co., Ltd. ("CNRS"), QVC's joint venture in
China, 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.
zulily
“We remain focused on delivering great products at great values
every day. As expected, we faced tough comps and margin pressure in
Q2 due to investments in our fulfillment capabilities, technology
and our third-party fulfillment services,” said zulily President
and CEO, Darrell Cavens. “We continue to believe in the strength of
our model and the opportunities ahead.”
The following table provides zulily’s stand-alone financial and
operating results for the second quarter of 2017. Revenue was flat
in the second quarter, primarily attributed to the active customer
base remaining relatively flat year-over-year. Average order value
and the number of orders placed per active customer both increased
modestly, partially offset by a 1.2% decrease in total orders
placed. An active customer is defined as an individual who has
purchased at least once in the last twelve months, measured from
the last date of a period. Operating income margin improved, driven
primarily by decelerating amortization of intangible assets related
to purchase accounting. Adjusted OIBDA margin decreased primarily
due to international shipping costs, product mix shift, expansion
of zulily’s third-party fulfillment services and free shipping
options.
(amounts in millions unless otherwise noted) 2Q16 2Q17 %
Change
zulily Financial Metrics Net Revenue $ 366 $
367 0 % Gross Margin 29.8 % 27.8 % (200 ) bps Operating Income
(Loss) $ (43 ) $ (29 ) 33 % Operating Income Margin (%) (11.7 ) %
(7.9 ) % 380 bps Adjusted OIBDA $ 31 $ 26 (16 ) % Adjusted OIBDA
Margin (%) 8.5 % 7.1 % (140 ) bps
Operating Metrics Mobile %
of Total Orders 63.2 % 66.6 % 340 bps LTM Total Customers(1) 5.0
4.9 (2 ) % (1) LTM: Last twelve months.
Share Repurchases
There were no repurchases of QVC Group common stock (Nasdaq:
QVCA) from May 1, 2017 through July 31, 2017. Repurchases during
the period were impacted by the pending HSNi transaction. 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 $7.1 billion,
representing approximately 46% 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 common stock, were
comprised of shares of the combined stocks. The remaining
repurchase authorization for Liberty Interactive as of August 1,
2017 is approximately $948 million, of which $298 million can be
applied to repurchases of either QVC Group or Liberty Ventures
common stock and $650 million can only be applied to Liberty
Ventures common stock.
QVC Group has attributed to it Liberty Interactive’s
subsidiaries, QVC, Inc. and zulily, llc, and Liberty Interactive’s
interest in HSNi.
LIBERTY VENTURES GROUP – Approximately $11 million of
corporate level SG&A expense (including stock-based
compensation expense) was allocated to Liberty Ventures Group in
the second quarter of 2017.
On April 4, 2017, Liberty Interactive entered into an agreement
and plan of reorganization with GCI, the largest communications
provider in Alaska, whereby Liberty Interactive will acquire GCI
through a reorganization in which certain Liberty Ventures Group
assets and liabilities will be contributed to GCI in exchange for a
controlling interest in GCI, followed by a subsequent split-off of
the combined company, GCI Liberty. Additional information is
available in the registration statement on Form S-4 that GCI filed
with the SEC on August 1, 2017.
The transactions between Liberty Interactive and GCI are
expected to be completed during the fourth quarter of 2017, subject
to customary closing conditions including, among other things,
receipt of regulatory approval and the requisite shareholder
approvals. In June 2017, the Federal Trade Commission granted early
termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act.
Simultaneous with the closing of the transactions with Liberty
Interactive and GCI, the QVC Group, including wholly-owned
subsidiaries QVC, Inc., zulily and HSNi (or, if the HSNi
acquisition has not yet closed, following such closing), will
become an asset-backed stock and Liberty Interactive will be
renamed QVC Group, Inc. Neither the proposed transactions involving
GCI nor the acquisition of HSNi is conditioned on the completion of
the other, and no assurance can be given as to which of these
transactions will be completed first.
Share Repurchases
There were no repurchases of Liberty Ventures common stock
(Nasdaq: LVNTA) from May 1, 2017 through July 31, 2017. The
remaining repurchase authorization for Liberty Interactive as of
August 1, 2017 is approximately $948 million, of which $298 million
can be applied to repurchases of either QVC Group or Liberty
Ventures common stock and $650 million can only be applied to
Liberty Ventures common stock.
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
Liberty Broadband Corporation and FTD, Liberty Interactive’s
subsidiary Evite, and minority interests in ILG, LendingTree and
Charter Communications.
FOOTNOTES
1) Liberty Interactive's President and CEO, Greg
Maffei, will discuss these highlights and other matters on Liberty
Interactive's earnings conference call which will begin at 2:30
p.m. (E.D.T.) on August 8, 2017. 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 constant currency
financial metrics, see the accompanying schedules. Applicable
reconciliations can be found in the financial tables at the
beginning of this press release.
QVC GROUP
FINANCIAL METRICS – QUARTER
(amounts in millions) 2Q16 2Q17 % Change
Revenue QVC
US $ 1,428 $ 1,367 (4 ) % QVC International(1) 635
612 (4 ) % Total QVC revenue 2,063 1,979 (4 ) %
zulily 366 367 0 % Intergroup eliminations (5 ) -
100 %
Total QVC Group Revenue
$ 2,424 $ 2,346 (3
) % Operating Income QVC US $ 236 $ 225
(5 ) % QVC International(1) 71 81 14
% Total QVC operating income 307 306 (0 ) % zulily (43 ) (29
) 33 % Corporate and other (10 ) (12 ) (20 ) %
Total QVC Group Operating Income $ 254
$ 265 4 %
Adjusted OIBDA QVC US $ 363 $ 361 (1 ) % QVC
International(1) 100 107 7 %
Total QVC adjusted OIBDA 463 468 1 % zulily 31 26 (16 ) % Corporate
and other (7 ) (6 ) 14 %
Total QVC Group
Adjusted OIBDA $ 487 $ 488
0 % Net Income and Adjusted
Net Income Total QVC Group net income $ 130 $ 111 (15 ) % Total
QVC Group adjusted net income(2) $ 218 $ 188 (14 ) %
China JV(3) Revenue $ 38 $ 39 3 % Adjusted OIBDA $ (1
) $ (1 ) - % (amounts in millions)
QVCA Shares
Outstanding
7/31/2016 7/31/2017 Outstanding A and B shares 476
451 (amounts in millions)
Quarter ended Quarter
ended
QVCA and QVCB
Basic and Diluted Shares
6/30/2016 6/30/2017 Basic weighted average shares
outstanding ("WASO") 479 451 Potentially dilutive shares 6
4
Diluted WASO 485
455 (1) Includes QVC
France, QVC Germany, QVC Italy, QVC Japan and QVC UK. (2) See
reconciling schedule 4. (3) This joint venture is being accounted
for as an equity investment.
NOTES
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) 3/31/2017
6/30/2017 HSN(1) $ 743 $ 639
Total Attributed QVC Group
$ 743 $ 639 Charter(2) $ 1,754 $
1,805 FTD(3) 205 204 Liberty Broadband(2) 3,688 3,703
LendingTree(4) 348 557 Other public holdings(2) 350
459
Total Attributed Liberty Ventures Group $
6,345 $ 6,728 (1)
Represents fair value of the investment in HSNi attributed to QVC
Group. In accordance with GAAP, this investment is accounted for
using the equity method of accounting and is included in the
attributed balance sheet of QVC Group at historical carrying value
which aggregated $194 million and $193 million at March 31, 2017
and June 30, 2017, respectively. (2) Represents fair value of the
investments in Charter, Liberty Broadband and other public holdings
attributed to Liberty Ventures Group, which are accounted for at
fair value. (3) Represents fair value of the investment in FTD
attributed to Liberty Ventures Group. In accordance with GAAP, this
investment is accounted for using the equity method of accounting
and is included in the attributed balance sheet of Liberty Ventures
Group at historical carrying value which aggregated $212 million
and $213 million at March 31, 2017 and June 30, 2017, respectively.
(4) Represents fair value of the investment in LendingTree
attributed to Liberty Ventures Group. In accordance with GAAP, this
investment is accounted for using the equity method of accounting
and is included in the attributed balance sheet of Liberty Ventures
Group at historical carrying values which aggregated $33 million
and $111 million at March 31, 2017 and June 30, 2017, respectively.
In June 2017, a subsidiary of Liberty Interactive purchased an
additional 450,000 shares of LendingTree for $76.8 million,
increasing its undiluted equity ownership to 27%.
Cash and Debt
The following presentation is provided to separately identify
cash and liquid investments and debt information.
(amounts in millions) 3/31/2017
6/30/2017
Cash and Liquid Investments Attributable to: QVC
Group $ 379 $ 420 Liberty Ventures Group 442
485
Total Liberty Consolidated Cash and Liquid
Investments $ 821 $ 905
Debt: Senior notes and debentures(1) $ 791 $
791 Senior exchangeable debentures(2) 1 1 QVC senior notes(1) 3,550
3,550 QVC bank credit facility 1,699 1,611 Other 180
180
Total Attributed QVC Group Debt $
6,221 $ 6,133 Unamortized discount, fair
market value adjustment and deferred loan costs (37 )
(36 )
Total Attributed QVC Group Debt (GAAP) $
6,184 $ 6,097 Senior
exchangeable debentures(2) 1,955 1,955
Total Attributed Liberty Ventures Group Debt $
1,955 $ 1,955 Fair market value adjustment
(209 ) (156 )
Total Attributed Liberty Ventures
Group Debt (GAAP) $ 1,746 $
1,799 Total Liberty Interactive Corporation
Debt (GAAP) $ 7,930 $ 7,896
(1) Face amount of Senior Notes and
Debentures with no reduction for the unamortized discount. (2) 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
increased $41 million in the second quarter. Net debt repayments
and capital expenditures were more than offset by cash provided
from operations. Total debt attributed to the QVC Group decreased
by $88 million primarily due to repayments on QVC’s credit
facility.
Total cash and liquid investments attributed to the Liberty
Ventures Group increased $43 million, primarily due to inter-group
tax payments received, partially offset by payments to purchase
additional shares of LendingTree. Total debt attributed to Liberty
Ventures Group was flat in the second quarter.
Important Notice: Liberty Interactive (Nasdaq: QVCA,
QVCB, LVNTA, LVNTB) President and CEO, Greg Maffei, will discuss
Liberty Interactive's earnings release on a conference call which
will begin at 2:30 p.m. (E.D.T.) on August 8, 2017. 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, market conditions, sales
demand, statements about the proposed acquisition (the “HSNi
acquisition”) of HSNi by Liberty Interactive, including those about
timing and expected benefits of the HSNi acquisition, the proposed
acquisition of GCI by Liberty Interactive and the proposed
split-off of GCI and certain Liberty Ventures Group assets and
liabilities (the “proposed split-off” and together with the
proposed acquisition of GCI, the “proposed transactions”), the
timing of the proposed transactions, the renaming of Liberty
Interactive, new service and product offerings, the monetization of
our non-core assets, the continuation of our stock repurchase
program 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, the
satisfaction of conditions to the proposed transactions and market
conditions conducive to stock repurchases. These forward-looking
statements speak only as of the date of this press release, 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 press release.
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 press release 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 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).
This press release also references certain financial metrics on
a constant currency basis, which is a non-GAAP measure, for QVC
Group. Constant currency financial metrics, as presented herein,
are calculated by translating the current-year and prior-year
reported amounts into comparable amounts using a single foreign
exchange rate for each currency.
Liberty Interactive believes constant currency financial metrics
are an important indicator of financial performance, in particular
for QVC Group, due to the translational impact of foreign currency
fluctuations relating to its subsidiaries in the UK, Germany,
Italy, Japan and France, as well as its JV in China. We use
constant currency financial metrics to provide a framework to
assess how our businesses performed excluding the effects of
foreign currency exchange fluctuations. Please see the financial
tables at the beginning of this press release for a reconciliation
of the impact of foreign currency fluctuations on revenue,
operating income, adjusted OIBDA and average selling price.
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 June 30, 2016, September 30,
2016, December 31, 2016, March 31, 2017 and June 30, 2017,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q16
3Q16 4Q16
1Q17 2Q17
QVC Group Adjusted
OIBDA 487 406 610 445 488 Depreciation and amortization (214 ) (219
) (208 ) (207 ) (205 ) Stock compensation expense (19 )
(20 ) (18 ) (12 ) (18 )
Operating
Income $ 254 $ 167
$ 384 $ 226 $
265
SCHEDULE 2
The following table provides a reconciliation of adjusted OIBDA
for QVC (and certain of its subsidiaries) and zulily to that entity
or such businesses' operating income (loss) calculated in
accordance with GAAP for the three months ended June 30, 2016,
September 30, 2016, December 31, 2016, March 31, 2017 and June 30,
2017, 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) 2Q16
3Q16 4Q16
1Q17 2Q17
QVC
Group
QVC Adjusted OIBDA QVC US $ 363 $ 308 $ 438 $ 336 $ 361 QVC
International 100 85 131 98 107 Consolidated QVC adjusted
OIBDA 463 393 569 434 468 Depreciation and amortization (146 ) (154
) (157 ) (157 ) (154 ) Stock compensation (10 ) (8 )
(8 ) (6 ) (8 )
QVC Operating Income
$ 307 $ 231 $
404 $ 271 $ 306
zulily Adjusted OIBDA $ 31 $ 18 $ 40 $ 15 $ 26
Depreciation and amortization (68 ) (65 ) (51 ) (50 ) (51 ) Stock
compensation (6 ) (5 ) (3 ) (3 )
(4 )
zulily Operating Income (Loss) $ (43
) $ (52 ) $ (14 )
$ (38 ) $ (29 )
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 June 30, 2016,
September 30, 2016, December 31, 2016, March 31, 2017 and June 30,
2017, respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q16
3Q16 4Q16
1Q17 2Q17 QVC Group adjusted
OIBDA $ 487 $ 406 $ 610 $ 445 $ 488 Liberty Ventures Group adjusted
OIBDA 8 (4 ) (5 ) (8 ) (7
)
Consolidated Liberty Interactive Corp. Adjusted OIBDA
$ 495 $ 402 $
605 $ 437 $ 481
Depreciation and amortization (221 ) (225 ) (211 ) (208 )
(206 ) Stock compensation (24 ) (20 ) (22 )
(16 ) (21 )
Consolidated Liberty Interactive Corp.
Operating Income $ 250 $ 157
$ 372 $ 213
$ 254
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 June 30, 2016, September 30, 2016,
December 31, 2016, March 31, 2017 and June 30, 2017,
respectively.
QUARTERLY SUMMARY
(amounts in millions) 2Q16
3Q16 4Q16
1Q17 2Q17 LTM
QVC Group Net income $ 130 $ 61 $ 188 $ 91 $ 111 $ 451
QVC purchase accounting amort., net
deferred tax benefit(1)
50 50 49 49 49 197
zulily purchase accounting amort., net
deferred tax benefit(2)
38 37 29 28 28 122 QVC
Group adjusted net income $ 218 $ 148 $ 266 $ 168 $ 188 $ 770
QVCA/B shares outstanding as of July 31, 2017 451 Adjusted
LTM earnings per share $ 1.71 (1) 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 is expected to be $212 million for
the twelve months ending December 31, 2017. The majority of the
intangible assets established in purchase accounting as a result of
the acquisition will be fully amortized by the end of the third
quarter of 2017). (2) 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
June 30, 2017 - (unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions
Assets Current assets: Cash and cash
equivalents $ 420 485 905 Trade and other receivables, net 854 37
891 Inventory, net 1,096 — 1,096 Other current assets 85 1
86 Total current assets 2,455 523 2,978
Investments in available-for-sale securities and other cost
investments 3 2,344 2,347 Investments in affiliates, accounted for
using the equity method 231 415 646 Investment in Liberty Broadband
measured at fair value — 3,703 3,703 Property and equipment, net
1,115 1 1,116 Intangible assets not subject to amortization 9,376
29 9,405 Intangible assets subject to amortization, net 743 4 747
Other assets, at cost, net of accumulated amortization 30 1
31 Total assets $ 13,953 7,020 20,973
Liabilities
and Equity Current liabilities: Intergroup payable (receivable)
$ 66 (66 ) — Accounts payable 714 — 714 Accrued liabilities 577 26
603 Current portion of debt 16 945 961 Other current liabilities
189 3 192 Total current liabilities 1,562 908
2,470 Long-term debt 6,081 854 6,935 Deferred income tax
liabilities 1,058 2,862 3,920 Other liabilities 145 4
149 Total liabilities 8,846 4,628 13,474
Equity/Attributed net assets (liabilities) 5,005 2,401 7,406
Non-controlling interests in equity of subsidiaries 102 (9 )
93 Total liabilities and equity $ 13,953 7,020 20,973
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended June 30, 2017 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Total revenue, net $ 2,346 6 2,352
Operating costs and expenses: Cost of sales 1,494 — 1,494
Operating 148 2 150 Selling, general and administrative, including
stock-based compensation 234 14 248 Depreciation and amortization
205 1 206 2,081 17
2,098 Operating income (loss) 265 (11 ) 254 Other
income (expense): Interest expense (74 ) (15 ) (89 ) Share of
earnings (losses) of affiliates, net 6 (15 ) (9 ) Realized and
unrealized gains (losses) on financial instruments, net — 116 116
Other, net (8 ) 1 (7 ) (76 ) 87 11
Earnings (loss) from continuing operations before income
taxes 189 76 265 Income tax benefit (expense) (69 ) (12 )
(81 ) Net earnings (loss) from continuing operations 120 64 184
Less net earnings (loss) attributable to noncontrolling interests
9 — 9 Net earnings (loss) attributable
to Liberty Interactive Corporation shareholders
$
111 64 175
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended June 30, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions Revenue: Total revenue, net $ 2,424 139 2,563
Operating costs and expenses: Cost of sales 1,538 83 1,621
Operating 157 20 177 Selling, general and administrative, including
stock-based compensation 261 33 294 Depreciation and amortization
214 7 221 2,170 143
2,313 Operating income (loss) 254 (4 ) 250
Other income (expense): Interest expense (71 ) (21 ) (92 ) Share of
earnings (losses) of affiliates, net 9 (11 ) (2 ) Realized and
unrealized gains (losses) on financial instruments, net 5 338 343
Other, net 20 80 100 (37 ) 386
349 Earnings (loss) from continuing operations before
income taxes 217 382 599 Income tax benefit (expense) (76 )
(136 ) (212 ) Net earnings (loss) from continuing operations 141
246 387 Earnings (loss) from discontinued operations —
3 3 Net earnings (loss) 141 249 390 Less net
earnings (loss) attributable to noncontrolling interests 11
— 11 Net earnings (loss) attributable to
Liberty Interactive Corporation shareholders $ 130 249
379
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Six months ended June 30, 2017-
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 223 480 703 Adjustments to reconcile net earnings
to net cash provided by operating activities: Depreciation and
amortization 412 2 414 Stock-based compensation 30 7 37 Share of
(earnings) losses of affiliates, net (20 ) 56 36 Cash receipts from
return on equity investments 14 — 14 Realized and unrealized gains
(losses) on financial instruments, net 1 (818 ) (817 ) Deferred
income tax (benefit) expense (78 ) 341 263 Other, net 11 2 13
Intergroup tax allocations 110 (110 ) — Intergroup tax (payments)
receipts (155 ) 155 — Changes in operating assets and liabilities
Current and other assets 291 8 299 Payables and other current
liabilities (179 ) — (179 ) Net cash provided (used)
by operating activities 660 123 783
CASH FLOWS FROM INVESTING ACTIVITIES: Investments in and
loans to cost and equity investees — (118 ) (118 ) Capital expended
for property and equipment (73 ) (1 ) (74 ) Other investing
activities, net (28 ) (1 ) (29 ) Net cash provided (used) by
investing activities (101 ) (120 ) (221 ) CASH FLOWS
FROM FINANCING ACTIVITIES: Borrowings of debt 1,199 — 1,199
Repayments of debt (1,491 ) (6 ) (1,497 ) Repurchases of QVC Group
common stock (152 ) — (152 ) Withholding taxes on net settlements
of stock-based compensation (12 ) (1 ) (13 ) Other financing
activities, net (30 ) 2 (28 ) Net cash provided
(used) by financing activities (486 ) (5 ) (491 ) Effect of
foreign currency rates on cash 9 — 9
Net increase (decrease) in cash and cash equivalents 82 (2 ) 80
Cash and cash equivalents at beginning of period 338
487 825 Cash and cash equivalents at end period
$
420 485 905
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Six months ended June 30, 2016 -
(unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
amounts in millions CASH FLOWS FROM OPERATING ACTIVITIES: Net
earnings (loss) $ 243 223 466 Adjustments to reconcile net earnings
to net cash provided by operating activities: (Earnings) loss from
discontinued operations — 13 13 Depreciation and amortization 423
15 438 Stock-based compensation 37 18 55 Cash payments for
stock-based compensation — (91 ) (91 ) Share of losses (earnings)
of affiliates, net (30 ) 29 (1 ) Cash receipts from return on
equity investments 14 2 16 Realized and unrealized gains (losses)
on financial instruments, net (4 ) (332 ) (336 ) Deferred income
tax (benefit) expense (94 ) 404 310 Other, net 15 (98 ) (83 )
Intergroup tax allocation 274 (274 ) — Intergroup tax (payments)
receipts (104 ) 104 — Changes in operating assets and liabilities
Current and other assets 369 23 392 Payables and other current
liabilities (491 ) (17 ) (508 ) Net cash provided (used) by
operating activities 652 19 671
CASH FLOWS FROM INVESTING ACTIVITIES: Cash proceeds from
disposition — 129 129 Investments in and loans to cost and equity
investees — (42 ) (42 ) Capital expended for property and equipment
(110 ) (15 ) (125 ) Purchases of short term and other marketable
securities — (264 ) (264 ) Sales of short term and other marketable
securities 12 1,162 1,174 Investment in Liberty Broadband — (2,400
) (2,400 ) Other investing activities, net (2 ) 1 (1
) Net cash provided (used) by investing activities (100 )
(1,429 ) (1,529 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 778 587 1,365 Repayments of debt (923 ) (1,096 )
(2,019 ) Repurchases of QVC Group common stock (417 ) — (417 )
Withholding taxes on net settlements of stock-based compensation
(13 ) — (13 ) Other financing activities, net (13 ) 3
(10 ) Net cash provided (used) by financing activities (588
) (506 ) (1,094 ) Effect of foreign currency rates on cash 4 — 4
Net cash provided (used) by discontinued operations: Cash provided
(used) by operating activities — 9 9 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 — 9 9 Net
increase (decrease) in cash and cash equivalents (32 )
(1,907 ) (1,939 ) Cash and cash equivalents at beginning of period
426 2,023 2,449 Cash and cash
equivalents at end period $ 394 116 510
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Liberty Interactive CorporationCourtnee Chun, 720-875-5420
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