Company Quick10K Filing
Quick10K
QVC
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-02-28 Regulation FD, Exhibits
8-K 2019-02-27 Earnings, Exhibits
8-K 2018-12-31 Off-BS Arrangement, Exhibits
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-10-17 Regulation FD, Exhibits
8-K 2018-10-12 Regulation FD, Exhibits
8-K 2018-09-28 Regulation FD, Exhibits
8-K 2018-09-13 Regulation FD, Exhibits
8-K 2018-09-06 Other Events, Exhibits
8-K 2018-09-06 Regulation FD
8-K 2018-09-06 Other Events, Exhibits
8-K 2018-08-29 Regulation FD, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-05-03 Regulation FD, Exhibits
8-K 2018-03-05 Earnings, Regulation FD, Exhibits
SMLR Semler Scientific 320
DENR Discovery Energy 53
INIS International Isotopes 34
HICKA Hickok 27
DWOG Deep Well Oil & Gas 14
CBAI CBA Florida 0
SPS Southwestern Public Service 0
ECRD Ecard 0
GPFF Grant Park Futures Fund Limited Partnership 0
CRTN Cartesian 0
QVC 2019-06-30
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 6. Exhibits
EX-31.1 qvc_exhibit3116302019.htm
EX-31.2 qvc_exhibit3126302019.htm
EX-32.1 qvc_exhibit321x6302019.htm

QVC Earnings 2019-06-30

QVC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 qvc_10qx063020191.htm 10-Q Document
Table of Contents -- Click here to rapidly navigate through this document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-55409
QVC, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of
incorporation or organization)
23-2414041
(I.R.S. Employer Identification Number)
 
 
1200 Wilson Drive
West Chester, Pennsylvania
(Address of principal executive offices)
19380
(Zip Code)
Registrant's telephone number, including area code: (484) 701-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
6.375% Senior Secured Notes due 2067
QVCD
New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

None of the voting stock of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of voting stock of the registrant. There is one holder of record of our equity, Qurate Retail Group, Inc., an indirect wholly-owned subsidiary of Qurate Retail, Inc.
 



QVC, Inc.
2019 QUARTERLY REPORT ON FORM 10-Q


Table of Contents






Item 1. Financial Statements
QVC, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
June 30,

December 31,

(in millions, except share amounts)
2019

2018

Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
450

543

Restricted cash
8

7

Accounts receivable, less allowance for doubtful accounts of $114 at June 30, 2019 and $112 at December 31, 2018
1,254

1,787

Inventories
1,306

1,280

Prepaid expenses and other current assets
135

216

Total current assets
3,153

3,833

Property and equipment, net of accumulated depreciation of $1,348 at June 30, 2019 and $1,281 at December 31, 2018
1,193

1,165

Operating lease right-of-use assets
148


Television distribution rights, net
199

140

Goodwill
5,976

5,972

Other intangible assets, net
3,661

3,666

Other noncurrent assets
69

80

Total assets
$
14,399

14,856

Liabilities and equity


Current liabilities:


Current portion of debt and finance lease obligations
$
20

421

Accounts payable-trade
702

1,008

Accrued liabilities
857

1,026

Total current liabilities
1,579

2,455

Long-term portion of debt and finance lease obligations
5,072

4,699

Deferred income taxes
690

700

Other long-term liabilities
315

173

Total liabilities
7,656

8,027

Equity:


QVC, Inc. stockholder's equity:


Common stock, $0.01 par value, 1 authorized share


Additional paid-in capital
9,139

9,123

Accumulated deficit
(2,373
)
(2,269
)
Accumulated other comprehensive loss
(139
)
(144
)
Total QVC, Inc. stockholder's equity
6,627

6,710

Noncontrolling interest
116

119

Total equity
6,743

6,829

Total liabilities and equity
$
14,399

14,856


See accompanying notes to condensed consolidated financial statements.

I-1


QVC, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
(in millions)
2019

2018

2019

2018

Net revenue
$
2,514

2,556

$
5,015

$
5,158

Operating costs and expenses:
 
 



Cost of goods sold (exclusive of depreciation and amortization shown separately below)
1,578

1,589

3,188

3,245

Operating
179

209

356

422

Selling, general and administrative, including transaction related costs and stock-based compensation
268

270

538

547

Depreciation
54

43

100

87

Amortization
70

55

142

111


2,149

2,166

4,324

4,412

Operating income
365

390

691

746

Other (expense) income:
 
 
 
 
Equity in losses of investee
(1
)
(2
)
(1
)
(1
)
(Losses) gains on financial instruments
(1
)

(3
)
1

Interest expense, net
(60
)
(68
)
(121
)
(133
)
Foreign currency gain (loss)

2

(3
)
1


(62
)
(68
)
(128
)
(132
)
Income before income taxes
303

322

563

614

Income tax expense
(85
)
(78
)
(159
)
(158
)
Net income
218

244

404

456

Less net income attributable to the noncontrolling interest
(12
)
(11
)
(22
)
(22
)
Net income attributable to QVC, Inc. stockholder
$
206

233

382

434


See accompanying notes to condensed consolidated financial statements.

I-2


QVC, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
(in millions)
2019

2018

2019

2018

Net income
$
218

244

404

456

Foreign currency translation adjustments, net of tax
14

(96
)
8

(26
)
Total comprehensive income
232

148

412

430

Comprehensive income attributable to noncontrolling interest
(15
)
(6
)
(25
)
(24
)
Comprehensive income attributable to QVC, Inc. stockholder
$
217

142

387

406


See accompanying notes to condensed consolidated financial statements.

I-3


QVC, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
Six months ended June 30,
 
(in millions)
2019

2018

Operating activities:
 
 
Net income
$
404

456

Adjustments to reconcile net income to net cash provided by operating activities:




Equity in income of investee
1

1

Deferred income taxes
(9
)
1

Foreign currency loss (gain)
3

(1
)
Depreciation
100

87

Amortization
142

111

Change in fair value of financial instruments and noncash interest
7

3

Stock-based compensation
20

24

Change in other long-term liabilities
(6
)
2

Other non-cash charges, net
5


Effects of changes in working capital items
32

(33
)
Net cash provided by operating activities
699

651

Investing activities:
 
 
Capital expenditures
(153
)
(74
)
Expenditures for television distribution rights
(124
)
(61
)
Changes in other noncurrent assets
(13
)

Other investing activities
29

(8
)
Net cash used in investing activities
(261
)
(143
)
Financing activities:
 
 
Principal payments of senior secured credit facility and finance lease obligations
(1,425
)
(1,608
)
Principal borrowings of debt from senior secured credit facility
1,795

1,458

Principal repayment of senior secured notes
(400
)

Capital contribution received from Qurate Retail, Inc.

140

Dividends paid to Qurate Retail, Inc.
(469
)
(243
)
Dividends paid to noncontrolling interest
(28
)
(23
)
Other financing activities
(4
)
(14
)
Net cash used in financing activities
(531
)
(290
)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
1

4

Net (decrease) increase in cash, cash equivalents and restricted cash
(92
)
222

Cash, cash equivalents and restricted cash, beginning of period
550

290

Cash, cash equivalents and restricted cash, end of period
$
458

512

Effects of changes in working capital items:
 
 
Decrease in accounts receivable
$
539

616

Increase in inventories
(22
)
(118
)
Decrease (increase) in prepaid expenses and other current assets
41

(76
)
Decrease in accounts payable-trade
(282
)
(203
)
Decrease in accrued liabilities and other
(244
)
(252
)
Effects of changes in working capital items
$
32

(33
)

See accompanying notes to condensed consolidated financial statements.

I-4


QVC, Inc.
Condensed Consolidated Statements of Equity
(unaudited)
 
Common stock
Additional paid-in capital

Accumulated deficit

Accumulated other
comprehensive loss

Noncontrolling interest

Total equity

(in millions, except share data)
Shares

Amount

Balance, December 31, 2017
1

$

8,576

(2,797
)
(93
)
110

5,796

Adjustments due to new accounting pronouncements



13



13

Net income



434


22

456

Foreign currency translation adjustments, net of tax




(28
)
2

(26
)
Capital contribution paid from Qurate Retail, Inc.


140




140

Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other



(243
)

(23
)
(266
)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.



(3
)


(3
)
Withholding taxes on net share settlements of stock-based compensation


(16
)



(16
)
Stock-based compensation


24




24

Balance, June 30, 2018
1

$

8,724

(2,596
)
(121
)
111

6,118

 
Common stock
Additional paid-in capital

Accumulated deficit

Accumulated other
comprehensive loss

Noncontrolling interest

Total equity

(in millions, except share data)
Shares

Amount

Balance, March 31, 2018
1

$

8,713

(2,818
)
(30
)
105

5,970

Net income



233


11

244

Foreign currency translation adjustments, net of tax




(91
)
(5
)
(96
)
Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other



(10
)


(10
)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.



(1
)


(1
)
Withholding taxes on net share settlements of stock-based compensation


(1
)



(1
)
Stock-based compensation


12




12

Balance, June 30, 2018
1

$

8,724

(2,596
)
(121
)
111

6,118



See accompanying notes to condensed consolidated financial statements.

I-5



QVC, Inc.
Condensed Consolidated Statements of Equity
(unaudited)

 
Common stock
Additional paid-in capital

Accumulated deficit

Accumulated other
comprehensive loss

Noncontrolling interest

Total equity

(in millions, except share data)
Shares

Amount

Balance, December 31, 2018
1

$

9,123

(2,269
)
(144
)
119

6,829

Net income



382


22

404

Foreign currency translation adjustments, net of tax




5

3

8

Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other



(469
)

(28
)
(497
)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.



(17
)


(17
)
Withholding taxes on net share settlements of stock-based compensation


(4
)



(4
)
Stock-based compensation


20




20

Balance, June 30, 2019
1

$

9,139

(2,373
)
(139
)
116

6,743

 
Common stock
Additional paid-in capital

Accumulated deficit

Accumulated other
comprehensive loss

Noncontrolling interest

Total equity

(in millions, except share data)
Shares

Amount

Balance, March 31, 2019
1

$

9,129

(2,447
)
(150
)
107

6,639

Net income



206


12

218

Foreign currency translation adjustments, net of tax




11

3

14

Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other



(115
)

(6
)
(121
)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.



(17
)


(17
)
Withholding taxes on net share settlements of stock-based compensation


(1
)



(1
)
Stock-based compensation


11




11

Balance, June 30, 2019
1

$

9,139

(2,373
)
(139
)
116

6,743



See accompanying notes to condensed consolidated financial statements.

I-6

QVC, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)


(1) Basis of Presentation
QVC, Inc. and its consolidated subsidiaries ("QVC" or the "Company") is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.
In the United States ("U.S."), QVC's televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2, HSN and HSN2. During the first quarter of 2019, the Company transitioned its Beauty iQ channel to QVC 3. The Company's U.S. programming is also available on QVC.com and HSN.com, QVC's U.S. websites; mobile applications via streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, Amazon Fire, Facebook, etc.).
QVC's digital platforms enable consumers to purchase goods offered on our broadcast programming, along with a wide assortment of products that are available only on QVC.com and HSN.com. QVC.com, HSN.com and our other digital platforms (including our mobile applications, social pages and others) are natural extensions of our business model, allowing customers to engage in our shopping experience wherever they are, with live or on-demand content customized to the device they are using. In addition to offering video content, QVC.com and HSN.com allows shoppers to browse, research, compare and perform targeted searches for products, read customer reviews, control the order-entry process and conveniently access their account.
Internationally, QVC's televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland and Italy. In some of the countries where QVC operates, QVC's televised shopping programs are broadcast across multiple QVC channels: QVC Style and QVC2 in Germany and QVC Beauty, QVC Extra and QVC Style in the U.K. Similar to the U.S., our international businesses also engage customers via websites, mobile applications, and social pages. QVC's international business employs product sourcing teams who select products tailored to the interests of each local market.
The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui"). QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the six months ended June 30, 2019 and 2018, QVC-Japan paid dividends to Mitsui of $28 million and $23 million, respectively.
The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.
The Company is an indirect wholly-owned subsidiary of Qurate Retail, Inc. ("Qurate Retail") (formerly Liberty Interactive Corporation) (Nasdaq: QRTEA and QRTEB), which owns interests in a broad range of digital commerce businesses, including Qurate Retail's other wholly-owned subsidiaries Zulily, LLC ("Zulily"), HSN, Inc. ("HSN") prior to the transfer of ownership of HSN to QVC (described below), Cornerstone Brands, Inc. (former subsidiary of HSN prior to the transfer of ownership of HSN to QVC, "CBI") and other minority investments. QVC is part of the Qurate Retail Group ("QRG"), formerly QVC Group, a portfolio of brands including QVC, HSN, Zulily and CBI. On March 9, 2018, Qurate Retail, GCI Liberty, Inc. ("GCI Liberty") (formerly General Communication, Inc.), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail completed the previously announced transactions whereby Qurate Retail acquired GCI Liberty through a reorganization in which certain assets and liabilities attributed to Qurate Retail’s Ventures Group were contributed to GCI Liberty in exchange for a controlling interest in GCI Liberty. Qurate Retail then effected a tax-free separation of its controlling interest in the combined company. Qurate Retail's QVC Group common stock became the only outstanding common stock of Qurate Retail.


I-7

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

On October 1, 2015, Qurate Retail acquired all of the outstanding shares of Zulily (now known as Zulily, LLC). Zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day for a limited time period. Zulily is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the six months ended June 30, 2019 and 2018, QVC and Zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives and business advisory services. QVC allocated expenses of $4 million and $2 million to Zulily for the six months ended June 30, 2019 and 2018, respectively. Zulily allocated expenses of $4 million and $3 million to QVC for the six months ended June 30, 2019 and 2018, respectively.
On December 31, 2018, QVC amended and restated its senior secured credit facility (the "Fourth Amended and Restated Credit Agreement") increasing the revolving credit facility from $2.65 billion to $3.65 billion as explained further in note 6. The Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or Zulily. Under the terms of the Fourth Amended and Restated Credit Agreement, QVC and Zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of Zulily. As of June 30, 2019, there was $168 million borrowed by Zulily on the $400 million tranche of the Fourth Amended and Restated Credit Agreement, none of which the Company expects to repay on behalf of Zulily.
On December 29, 2017, Qurate Retail completed the acquisition of the remaining 62% ownership interest of HSN that it did not already own in an all-stock transaction. On December 31, 2018, Qurate Retail transferred its 100% ownership interest in HSN to QVC through a transaction among entities under common control. As a result of the transaction, the assets and liabilities of HSN (excluding its ownership interest in CBI) were transferred from Qurate Retail at Qurate Retail's historical cost to QVC through an equity contribution. CBI remained a subsidiary of Qurate Retail outside of the QVC legal structure. Beginning January 1, 2019, the Company's U.S. operations and HSN were combined to form the "QxH" reportable operating segment (see note 12). As a result of the common control transaction with Qurate Retail, the Company retrospectively adjusted certain balances within the consolidated financial statements for the three and six months ended June 30, 2018, in order to combine the financial results of the Company and HSN since Qurate Retail's acquisition of HSN on December 29, 2017. All periods presented are prepared on a combined basis and are referred to as the condensed consolidated financial statements herein. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.
QVC engages with CBI, which is a wholly owned subsidiary of Qurate Retail and prior to the common control transaction between QVC and Qurate Retail, included as part of HSN. CBI is not part of the results of operations or financial position of QVC presented in these consolidated financial statements. During the six months ended June 30, 2019, QVC and CBI engaged in multiple transactions relating to sourcing of merchandise, personnel and business advisory services. QVC allocated expenses of $11 million and $26 million to CBI for the six months ended June 30, 2019 and 2018, respectively. CBI allocated expenses of $1 million and $12 million to QVC for the six months ended June 30, 2019 and 2018, respectively. CBI also repaid a $29 million note receivable to QVC during the six months ended June 30, 2019.
On October 2018, QRG announced a series of initiatives designed to better position its QxH businesses (“QRG Initiatives”). As part of the QRG Initiatives, QVC will close its fulfillment centers in Lancaster, Pennsylvania and Roanoke, Virginia and has entered into an agreement to lease a new fulfillment center in Bethlehem, Pennsylvania, commencing in 2019 (see note 7).
In the fourth quarter of 2018, QVC announced the potential closure of its operations in France. The formal announcement to execute the closure was made in March 2019 and broadcasting for QVC in France was subsequently terminated on March 13, 2019.
The condensed consolidated financial statements include the accounts of QVC, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.


I-8

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

The accompanying (a) condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, internally-developed software, valuation of acquired intangible assets and goodwill and income taxes.
Adoption of new accounting pronouncements
In February 2016 and subsequently, the Financial Accounting Standards Board ("FASB") issued new guidance which revises the accounting related to lessee accounting as part of Accounting Standards Codification ("ASC") 842. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for most operating leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The Company adopted ASC 842 on January 1, 2019 utilizing the modified retrospective transition approach and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allows it to carry forward its historical lease classification, its determination regarding whether a contract contains a lease and any initial indirect costs that had existed prior to the adoption of this new standard. The Company also elected to combine both lease and non-lease components and elected for all short leases with a term of less than 12 months to not record a related operating lease right-of-use asset and operating lease liability on the consolidated balance sheet. The Company recognized $92 million of operating lease right-of-use assets, $18 million in short-term operating lease liabilities and $87 million of long-term operating lease liabilities on the consolidated balance sheet upon adoption of the new standard. The operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities, adjusted for deferred rent balances of $13 million, which were previously included in accrued liabilities and other long-term liabilities.
Accounting pronouncements issued but not adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which addresses the effect of the change in the U.S. federal corporate tax rate due to the enactment of the December 22, 2017 Tax Cuts and Jobs Act on items within accumulated other comprehensive income (loss). The Company has elected not to adopt this guidance as there would have been no significant effect of the standard on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles- Goodwill and Other- Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance will be effective for the Company in the first quarter of 2020 with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.



I-9

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(2) Television Distribution Rights, Net
Television distribution rights consisted of the following:
(in millions)
June 30, 2019

December 31, 2018

Television distribution rights
$
769

723

Less accumulated amortization
(570
)
(583
)
Television distribution rights, net
$
199

140

The Company recorded amortization expense of $32 million and $16 million for the three months ended June 30, 2019 and 2018, respectively, related to television distribution rights. For the six months ended June 30, 2019 and 2018, amortization expense for television distribution rights was $66 million and $32 million, respectively.
As of June 30, 2019, related amortization expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2019
$
65

2020
117

2021
14

2022
3

2023

(3) Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2019 were as follows:
(in millions)
QxH

QVC-International

Total

Balance as of December 31, 2018
$
5,112

860

5,972

Exchange rate fluctuations

4

4

Balance as of June 30, 2019
$
5,112

864

5,976

(4) Other Intangible Assets, Net
Other intangible assets consisted of the following:
 
June 30, 2019
 
December 31, 2018
 
(in millions)
Gross
cost

Accumulated
amortization

Other intangible assets, net

Gross
cost

Accumulated
amortization

Other intangible assets, net

Purchased and internally developed software
$
937

(666
)
271

890

(640
)
250

Affiliate and customer relationships
2,830

(2,474
)
356

2,831

(2,450
)
381

Debt origination fees
10

(1
)
9

10


10

Trademarks (indefinite life)
3,025


3,025

3,025


3,025


$
6,802

(3,141
)
3,661

6,756

(3,090
)
3,666

The Company recorded amortization expense of $38 million and $39 million for the three months ended June 30, 2019 and 2018, respectively, related to other intangible assets. For the six months ended June 30, 2019 and 2018, amortization expense for other intangible assets was $76 million and $79 million, respectively.


I-10

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

As of June 30, 2019, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2019
$
84

2020
136

2021
112

2022
81

2023
67

(5) Accrued Liabilities
Accrued liabilities consisted of the following:
(in millions)
June 30, 2019

December 31, 2018

Accounts payable non-trade
$
303

314

Allowance for sales returns
158

242

Accrued compensation and benefits
112

146

Sales and other taxes
64

101

Accrued interest
56

58

Income taxes
47

37

Deferred revenue
25

24

Accrued cable distribution fees
19

39

Other
73

65

 
$
857

1,026

(6) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations consisted of the following:
(in millions)
June 30, 2019

December 31, 2018

3.125% Senior Secured Notes due 2019, net of original issue discount
$

399

5.125% Senior Secured Notes due 2022
500

500

4.375% Senior Secured Notes due 2023, net of original issue discount
750

750

4.85% Senior Secured Notes due 2024, net of original issue discount
600

600

4.45% Senior Secured Notes due 2025, net of original issue discount
599

599

5.45% Senior Secured Notes due 2034, net of original issue discount
399

399

5.95% Senior Secured Notes due 2043, net of original issue discount
300

300

6.375% Senior Secured Notes due 2067
225

225

Senior secured credit facility
1,565

1,185

Finance lease obligations
178

188

Less debt issuance costs, net
(24
)
(25
)
Total debt and finance lease obligations
5,092

5,120

Less current portion
(20
)
(421
)
Long-term portion of debt and finance lease obligations
$
5,072

4,699



I-11

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Senior Secured Notes
All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to the senior secured credit facility. With exception of the notes in the following paragraph, the interest on QVC's senior secured notes is payable semi-annually. The 3.125% senior secured notes due 2019 were repaid in April 2019.
In September 2018, QVC completed a registered debt offering for $225 million of 6.375% Senior Secured Notes due 2067 (the "2067 Notes") at par. The proceeds were used to partially repay existing indebtedness under QVC's senior secured credit facility and for general corporate purposes. The costs to complete the financing were deferred and are being amortized to interest expense over the term of the 2067 Notes. Interest on the 2067 Notes will be paid quarterly in March, June, September and December. QVC has the option to call the 2067 Notes after 5 years at par value.
Senior Secured Credit Facility
On December 31, 2018, QVC entered into the Fourth Amended and Restated Credit Agreement with Zulily as borrowers (collectively, the “Borrowers”) which is a multi-currency facility that provides for a $3.65 billion revolving credit facility with a $450 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or Zulily with a $50 million sub-limit for standby letters of credit (see note 1). The remaining $3.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA (the “Combined Consolidated Leverage Ratio”). Borrowings that are London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if Zulily ceases to be controlled by Qurate Retail, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on December 31, 2023. Payment of loans may be accelerated following certain customary events of default.
QVC had $1,895 million available under the terms of the Fourth Amended and Restated Credit Agreement as of June 30, 2019, including the portion available under the $400 million tranche that Zulily may also borrow on. The interest rate on the Fourth Amended and Restated Credit Agreement was 3.9% as of June 30, 2019.
The payment and performance of the Borrowers’ obligations under the Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement). Further, the borrowings under the Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of QVC’s equity interests. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and Zulily are also guaranteed by each of Zulily’s Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of Zulily’s equity interests.
The Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and Zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting the Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated Leverage Ratio.


I-12

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Interest Rate Swap Arrangements
During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement did not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in (losses) gains on financial instruments in the accompanying condensed consolidated statements of operations. The swap arrangement expired in June 2019. In July 2019, the Company entered into a three-year interest swap arrangement with a notional amount of $125 million. The new swap arrangement will not qualify as a cash flow hedge under U.S. GAAP.
As of December 31, 2017, HSN had an outstanding interest rate swap that effectively converted $250 million of its variable rate bank credit facility to a fixed rate of 1.05% with a maturity date in January 2020. The Company accounted for the interest rate swap at fair value with changes recorded through (losses) gains on financial instruments in the condensed consolidated statements of operations. On December 31, 2018, the interest rate swap was terminated as a result of the termination of HSN's $1.25 billion five-year syndicated credit agreement entered into on January 27, 2015. Subsequently, QVC entered into a thirteen month interest rate swap arrangement with the same terms. The new swap instrument does not qualify as a cash flow hedge and the fair value of the swap instrument was in a net asset position of approximately $1 million as of June 30, 2019, which was included in prepaid expenses and other current assets.

Other Debt Related Information
QVC was in compliance with all of its debt covenants as of June 30, 2019.
The weighted average interest rate applicable to all of the outstanding debt (excluding finance leases) prior to amortization of bond discounts and related debt issuance costs was 4.6% as of June 30, 2019.
(7) Leases
The Company has finance lease agreements with transponder and transmitter network suppliers for the right to transmit its signals in the U.S., Germany and France. The Company is also party to a finance lease agreement for data processing hardware and a warehouse.
QVC also leases data processing equipment, facilities, office space and land. These leases are classified as operating leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 15 years, some of which may include the option to extend or terminate the leases.
The components of lease cost for the three and six months ended June 30, 2019, were as follows:

Three months ended

Six months ended

(in millions)
June 30, 2019

June 30, 2019

Finance lease cost




     Depreciation of leased assets
$
5

10

     Interest on lease liabilities
2

4

Total finance lease cost
7

14

Operating lease cost
8

14

     Total lease cost
$
15

28

For the three months ended June 30, 2018, the Company recorded depreciation expense on finance leases (previously referred to as capital leases) of $4 million and recorded operating lease expenses of $9 million. For the six months ended June 30, 2018 the Company recorded depreciation expense on finance leases (previously referred to as capital leases) of $8 million and recorded operating lease expenses of $18 million.


I-13

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

The remaining weighted-average lease term and the weighted-average discount rate were as follows:

June 30, 2019

Weighted-average remaining lease term (years):

     Finance leases
9.3

     Operating leases
12.1

Weighted-average discount rate:

     Finance leases
5.0
%
     Operating leases
6.1
%
Supplemental balance sheet information related to leases was as follows:
(in millions)
June 30, 2019

Operating Leases:


  Operating lease right-of-use assets
$
148

  Accrued liabilities
$
21

  Other long-term liabilities
147
      Total operating lease liabilities
$
168

Finance Leases:

   Property and equipment
$
277

   Accumulated depreciation
(128
)
     Property and equipment, net
$
149

   Current portion of debt and finance lease obligations
$
20

   Long-term portion of debt and finance lease obligations
158
     Total finance lease liabilities
$
178

Supplemental cash flow information related to leases was as follows:

Six months ended

(in millions)
June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:


     Operating cash flows from operating lease
$
12

     Operating cash flows from finance leases
4

     Financing cash flows from finance leases
10

Right-of-use assets obtained in exchange for lease obligations:


      Operating leases
72

      Finance leases
$



I-14

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Future payments under noncancelable operating leases and finance leases with initial terms of one year or more as of June 30, 2019 consisted of the following:
(in millions)
Finance leases

Operating leases

Total leases

Remainder of 2019
$
15

14

29

2020
27

29

56

2021
25

20

45

2022
23

18

41

2023
22

16

38

Thereafter
117

155

272

Total lease payments
229

252

481

Less: imputed interest
(51
)
(84
)
(135
)
Total lease liabilities
$
178

168

346

On July 2, 2015, QVC entered into a lease (the “Lease”) for a California distribution center. Pursuant to the Lease, the landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter leased the Premises to QVC as its California distribution center for an initial term of 15 years. Under the Lease, QVC was required to pay an initial base rent of approximately $6 million per year, increasing to approximately $8 million per year by the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also had an option to extend the term of the Lease for up to two consecutive terms of 10 years each.
The Company concluded that it was the deemed owner (for accounting purposes only) of the Premises during the construction period under build to suit lease accounting. Upon opening the distribution center, the Company evaluated whether the Lease met the criteria for "sale-leaseback" treatment under U.S. GAAP and concluded that it did not and therefore treated the Lease as a financing obligation and lease payments were attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense representing an imputed cost to lease the underlying land of the Premises.
In August 2018, QVC exercised the right to purchase the Premises and related land from the landlord by entering into an amended and restated agreement ("New Lease"). QVC made an initial payment of $10 million and will make annual payments of $12 million over a term of 13 years. The Company classifies the New Lease within finance lease obligations and lease payments are attributed to: (1) a reduction of the principal obligation and (2) imputed interest expense. In connection with the New Lease, QVC capitalized the related land at fair market value while the building asset is currently being depreciated over its estimated useful life of 20 years.
On October 5, 2018, QVC entered into a lease (“ECDC Lease”) for an East Coast distribution center. The 1.7 million square foot rental building is located in Bethlehem, Pennsylvania and will be leased to QVC for an initial term of 15 years. QVC obtained access to a portion of the ECDC Lease during March 2019 and recorded a right of use asset of $68 million and an operating lease liability of $69 million. The Company expects the remaining portion of the lease to commence during the third quarter of 2019. Under the ECDC Lease, QVC is required to pay an initial base rent of approximately $10 million per year, with payments expected to begin in the fourth quarter of 2019 and increasing to approximately $14 million per year, as well as all real estate taxes and other building operating costs. QVC also has the option to extend the term of the ECDC Lease for up to two consecutive terms of 5 years each and one final term of 4 years.



I-15

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(8) Revenue

Disaggregated revenue by segment and product category consisted of the following:

 
Three months ended June 30, 2019
 
Six months ended June 30, 2019
 
(in millions)
QxH

QVC-International

Total

QxH

QVC-International

Total

Home
$
655

231

886

1,334

478

1,812

Apparel
344

108

452

670

220

890

Beauty
317

158

475

609

301

910

Accessories
247

65

312

467

127

594

Electronics
173

22

195

354

47

401

Jewelry
93

50

143

205

102

307

Other revenue
45

6

51

92

9

101

Total net revenue
$
1,874

640

2,514

3,731

1,284

5,015



Three months ended June 30, 2018
 
Six months ended June 30, 2018
 
(in millions)
QxH

QVC-International

Total

QxH

QVC-International

Total

Home
$
651

235

886

1,377

495

1,872

Apparel
378

116

494

703

235

938

Beauty
316

158

474

622

302

924

Accessories
230

72

302

448

139

587

Electronics
164

22

186

338

48

386

Jewelry
113

48

161

245

103

348

Other revenue
48

5

53

93

10

103

Total net revenue
$
1,900

656

2,556

3,826

1,332

5,158


Consumer Product Revenue and Other Revenue

QVC's revenue includes sales of consumer products in the following categories; home, apparel, beauty, accessories, electronics and jewelry, which are primarily sold through live merchandise-focused televised shopping programs and via our websites and other interactive media.

Other revenue consists primarily of income generated from our Private Label Credit Card ("PLCC") program in which a large consumer financial services company provides revolving credit directly to QVC's customers for the sole purpose of purchasing merchandise or services with a PLCC. In return, the Company receives a portion of the net economics of the credit card program.

Revenue Recognition

For the three and six months ended June 30, 2019 and 2018, respectively, revenue is recognized when obligations with our customer are satisfied; generally this occurs at the time of shipment to our customers consistent with when control of the shipped product passes. The recognized revenue reflects the consideration we expect to receive in exchange for transferring goods, net of allowances for returns.

The Company generally recognizes revenue related to the PLCC program over time as the PLCC is used by QVC's customers.



I-16

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Sales, value add, use and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company has elected to treat shipping and handling activities that occur after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company accrues the related shipping costs and recognizes revenue upon delivery of the goods to the shipping carrier. In electing this accounting policy, all shipping and handling activities will be treated as fulfillment costs.

The Company generally has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money.

Significant Judgments

Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. The Company has determined that it is generally the principal in vendor arrangements as the Company can establish control over the goods prior to shipment. Accordingly, the Company records revenue for these arrangements on a gross basis.

(9) Income Taxes
The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.
For the three months ended June 30, 2019 and 2018, the Company recorded a tax provision of $85 million and $78 million, respectively, which represented an effective tax rate of 28.1% and 24.2%, respectively. For the six months ended June 30, 2019 and 2018, the Company recorded a tax provision of $159 million and $158 million, respectively, which represented an effective tax rate of 28.2% and 25.7%, respectively. The 2019 rate differs from the U.S. federal income tax rate of 21% due primarily to state and foreign tax expenses and valuation allowances established for foreign net operating losses and excess U.S. foreign tax credits. The 2019 effective tax rate has increased from the prior year for both periods presented primarily due to an increase in state accruals and additional valuation allowances on foreign net operating losses and foreign tax credits in the current year.
The Company participates in a consolidated federal return filing with Qurate Retail. As of June 30, 2019, the Company's tax years through 2014 are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2015, 2016, and 2017 tax years. The Company's 2018 and 2019 tax years are being examined currently as part of the Qurate Retail consolidated return under the IRS's Compliance Assurance Process program. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of June 30, 2019, the Company was under examination in the states of Florida, Pennsylvania and Wisconsin and certain of the Company's subsidiaries were under examination in Germany.


I-17

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Qurate Retail. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Qurate Retail for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Qurate Retail an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Qurate Retail, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.
The amounts of the tax-related balances due to Qurate Retail as of June 30, 2019 and December 31, 2018 were $33 million and $26 million, respectively, and were included in accrued liabilities in the accompanying condensed consolidated balance sheets.
(10) Commitments and Contingencies
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that the amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
Network and information systems, including the Internet and telecommunication systems, third party delivery services and other technologies are critical to QVC's business activities. Substantially all of QVC's customer orders, fulfillment and delivery services are dependent upon the use of network and information systems, including the use of third party telecommunication and delivery service providers. If information systems including the Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, the Company could face a significant disruption in fulfilling QVC's customer orders and shipment of QVC's products. The Company has active disaster recovery programs in place to help mitigate risks associated with these critical business activities.
(11) Financial Instruments and Fair Value Measurements
For assets and liabilities required to be reported or disclosed at fair value, U.S. GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
The Company's assets and liabilities measured or disclosed at fair value were as follows:


Fair value measurements at June 30, 2019 using
 
(in millions)
Total

Quoted prices
in active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Current assets:




    Cash equivalents
$
222

222



    Interest rate swap arrangements (note 6)
1


1


Debt (note 6)
4,980

226

4,754




I-18

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)



Fair value measurements at December 31, 2018 using
 
(in millions)
Total

Quoted prices
in active
markets for
identical
assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Current assets:




    Cash equivalents
$
267

267



    Interest rate swap arrangements (note 6)
5


5


Debt (note 6)
4,758

189

4,569


The 2067 Notes (ticker: QVCD) are considered Level 1 fair value instruments as reported in the foregoing tables as they are traded on the New York Stock Exchange, which the Company considers to be an "active market," as defined by U.S. GAAP. The remainder of the Company's Level 2 financial liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets." Accordingly, these financial instruments are reported in the foregoing tables as Level 2 fair value instruments.
(12) Information about QVC's Operating Segments
The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as net revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per subscriber equivalent. The Company defines Adjusted OIBDA, a non-GAAP measure, as net revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding restructuring, integration and advisory fees incurred by QVC as a result of the acquisition of HSN by Qurate Retail on December 29, 2017 as well as the closure of the France market ("transaction related costs") and stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments by identifying those items that are not directly a reflection of each segment's performance or indicative of ongoing business trends. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among the Company's businesses and identify strategies to improve performance. This measure of performance excludes depreciation, amortization, stock-based compensation and transaction related costs that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.
QVC's chief operating decision maker ("CODM") is QVC's Chief Executive Officer. QVC's CODM has ultimate responsibility for enterprise decisions. QVC's CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise. The segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. QVC's CODM relies on internal management reporting that analyzes enterprise results and segment results to the Adjusted OIBDA level (see below).
During the first quarter of 2019, the Company changed its reportable operating segments to combine QVC-U.S. and HSN into one reportable segment called QxH and presented prior period information to conform with this change. As a result of the QRG Initiatives and additional synergies between QVC-U.S. and HSN, the CODM began reviewing the QVC-U.S. and HSN information as one business unit during the first quarter.
For the three and six months ended June 30, 2019, QVC has identified QxH and QVC-International as its two reportable segments. Both operating segments are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets.


I-19

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Performance measures

Three months ended June 30,
 
Six months ended June 30,
 

2019
 
2018
 
2019
 
2018
 
(in millions)
Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

QxH
$
1,874

395

1,900

401

3,731

747

3,826

770

QVC-International
640

106

656

100

1,284

207

1,332

207

   Consolidated QVC
$
2,514

501

2,556

501

5,015

954

5,158

977

Other information

Three months ended June 30,
 
Six months ended June 30,
 

2019
 
2018
 
2019
 
2018
 
(in millions)
Depreciation

Amortization

Depreciation

Amortization

Depreciation

Amortization

Depreciation

Amortization

QxH
$
28

67

30

52

56

136

59

105

QVC-International
26

3

13

3

44

6

28

6

Consolidated QVC
$
54

70

43

55

100

142

87

111


June 30, 2019
 
(in millions)
Total
assets

Capital
expenditures

Property and equipment, net

QxH
$
12,244

140

776

QVC-International
2,155

13

417

Consolidated QVC
$
14,399

153

1,193

The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:

Three months ended June 30,
 
Six months ended June 30,
 
(in millions)
2019

2018

2019

2018

Adjusted OIBDA
$
501

501

$
954

$
977

Transaction related costs
(1
)
(1
)
(1
)
(9
)
Stock-based compensation
(11
)
(12
)
(20
)
(24
)
Depreciation and amortization
(124
)
(98
)
(242
)
(198
)
Equity in losses of investee
(1
)
(2
)
(1
)
(1
)
(Losses) gains on financial instruments
(1
)

(3
)
1

Interest expense, net
(60
)
(68
)
(121
)
(133
)
Foreign currency gain (loss)

2

(3
)
1

      Income before income taxes
$
303

322

563

614



I-20

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(13) Other Comprehensive Income
The change in the component of accumulated other comprehensive loss, net of taxes ("AOCL"), is summarized as follows:
(in millions)
Foreign currency translation adjustments

AOCL

Balance at January 1, 2019
$
(144
)
(144
)
Other comprehensive income attributable to QVC, Inc. stockholder
5

5

Balance at June 30, 2019
(139
)
(139
)
 
 
 
Balance at January 1, 2018
$
(93
)
(93
)
Other comprehensive income attributable to QVC, Inc. stockholder
(28
)
(28
)
Balance at June 30, 2018
(121
)
(121
)
The component of other comprehensive income is reflected in QVC's condensed consolidated statements of comprehensive income, net of taxes. The following table summarizes the tax effects related to the component of other comprehensive income:
(in millions)
Before-tax amount

Tax expense

Net-of-tax amount

Three months ended June 30, 2019



Foreign currency translation adjustments
$
14


14

Other comprehensive income
14


14





Three months ended June 30, 2018



Foreign currency translation adjustments
$
(97
)
1

(96
)
Other comprehensive income
(97
)
1

(96
)




Six months ended June 30, 2019



Foreign currency translation adjustments
$
8


8
Other comprehensive income
8


8




Six months ended June 30, 2018



Foreign currency translation adjustments
$
(26
)

(26
)
Other comprehensive income
(26
)

(26
)
(14) Subsequent Event
Subsequent to June 30, 2019, QVC declared and paid dividends to Qurate Retail in the amount of $170 million.



I-21

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

(15) Guarantor/Non-guarantor Subsidiary Financial Information
The following information contains the condensed consolidating financial statements for the Company, the parent on a stand-alone basis (QVC, Inc.), the combined subsidiary guarantors (Affiliate Relations Holdings, Inc.; Affiliate Investment, Inc.; AMI 2, Inc.; ER Marks, Inc.; QVC Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.
In connection with the Fourth Amended and Restated Credit Agreement (refer to Note 6) on December 31, 2018, the following subsidiaries became part of the combined subsidiary guarantors: QVC Deutschland GP, Inc.; HSN, Inc.; HSNi, LLC; HSN Holding LLC; AST Sub, Inc.; Home Shopping Network En Espanol, L.P.; Home Shopping Network En Espanol, L.L.C; H.O.T. Networks Holdings (Delaware) LLC; HSN of Nevada LLC; Ingenious Designs LLC; NLG Merger Corp.; Ventana Television, Inc. and Ventana Television Holdings, Inc. The Company has shown all of the subsidiaries of our HSN segment as combined subsidiary guarantors as of December 29, 2017, the date in which HSN became a subsidiary of QVC through a common control transaction with Qurate Retail.
These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company.
The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors, by dividend or loan. The Company has not presented separate notes and other disclosures concerning the subsidiary guarantors as the Company has determined that such material information is available in the notes to the Company's condensed consolidated financial statements.


I-22

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Balance Sheets
June 30, 2019
 
(in millions)
Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations

Consolidated-
QVC, Inc. and
subsidiaries

Assets
Current assets:





Cash and cash equivalents
$
11

186

253


450

Restricted cash
5


3


8

Accounts receivable, net
783

181

290


1,254

Inventories
752

274

280


1,306

Prepaid expenses and other current assets
65

17

53


135

Total current assets
1,616

658

879


3,153

Property and equipment, net
268

236

689


1,193

Operating lease right-of-use assets
3

14

131


148

Television distribution rights, net

198

1


199

Goodwill
4,190

922

864


5,976

Other intangible assets, net
547

3,087

27


3,661

Other noncurrent assets
11

12

46


69

Investments in subsidiaries
5,717

943


(6,660
)

Total assets
$
12,352

6,070

2,637

(6,660
)
14,399

Liabilities and equity
Current liabilities:





Current portion of debt and finance lease obligations
$
3

1

16


20

Accounts payable-trade
372

106

224


702

Accrued liabilities
150

372

335


857

Intercompany accounts payable (receivable)
62

(1,216
)
1,154



Total current liabilities
587

(737
)
1,729


1,579

Long-term portion of debt and finance lease obligations
4,921

6

145


5,072

Deferred income taxes
65

684

(59
)

690

Other long-term liabilities
152

22

141


315

Total liabilities
5,725

(25
)
1,956


7,656

Equity:





QVC, Inc. stockholder's equity
6,627

6,095

565

(6,660
)
6,627

Noncontrolling interest


116


116

Total equity
6,627

6,095

681

(6,660
)
6,743

Total liabilities and equity
$
12,352

6,070

2,637

(6,660
)
14,399



I-23

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Condensed Consolidating Balance Sheets
December 31, 2018
 
(in millions)
Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations

Consolidated-
QVC, Inc. and
subsidiaries

Assets
Current assets:





Cash and cash equivalents
$
73

192

278


543

Restricted cash
5


2


7

Accounts receivable, net
1,166

307

314


1,787

Inventories
725

310

245


1,280

Prepaid expenses and other current assets
95

73

48


216

Total current assets
2,064

882

887


3,833

Property and equipment, net
281

213

671


1,165

Television distribution rights, net

139

1


140

Goodwill
4,190

922

860


5,972

Other intangible assets, net
529

3,116

21


3,666

Other noncurrent assets
8

20

52


80

Investments in subsidiaries
5,523

885


(6,408
)

Total assets
$
12,595

6,177

2,492

(6,408
)
14,856

Liabilities and equity
Current liabilities:





Current portion of debt and capital lease obligations
$
403

1

17


421

Accounts payable-trade
494

201

313


1,008

Accrued liabilities
358

394

274


1,026

Intercompany accounts (receivable) payable
(95
)
(1,015
)
1,110



Total current liabilities
1,160

(419
)
1,714


2,455

Long-term portion of debt and capital lease obligations
4,540

6

153


4,699

Deferred income taxes
63

695

(58
)

700

Other long-term liabilities
122

34

17


173

Total liabilities
5,885

316

1,826


8,027

Equity:





QVC, Inc. stockholder's equity
6,710

5,861

547

(6,408
)
6,710

Noncontrolling interest


119


119

Total equity
6,710

5,861

666

(6,408
)
6,829

Total liabilities and equity
$
12,595

6,177

2,492

(6,408
)
14,856



I-24

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Three months ended June 30, 2019
 
(in millions)
Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations

Consolidated-
QVC, Inc. and
subsidiaries

Net revenue
$
1,423

695

693

(297
)
2,514

Operating costs and expenses
 
 
 
 
 
Cost of goods sold (exclusive of depreciation and amortization shown separately below)
847

342

422

(33
)
1,578

Operating
101

98

67

(87
)
179

Selling, general and administrative, including transaction related costs and stock-based compensation
286

45

114

(177
)
268

Depreciation
15

9

30


54

Amortization
18

48

4


70


1,267

542

637

(297
)
2,149

Operating income
156

153

56


365

Other (expense) income:





Equity in losses of investee


(1
)

(1
)
Losses on financial instruments
(1
)



(1
)
Interest (expense) income, net
(59
)

(1
)

(60
)
Foreign currency gain (loss)
1


(1
)


Intercompany interest income (expense)
8

10

(18
)



(51
)
10

(21
)

(62
)
Income before income taxes
105

163

35


303

Income tax expense
(32
)
(32
)
(21
)

(85
)
Equity in earnings of subsidiaries, net of tax
145



(145
)

Net income
218

131

14

(145
)
218

Less net income attributable to the noncontrolling interest
(12
)

(12
)
12

(12
)
Net income attributable to QVC, Inc. stockholder
$
206

131

2

(133
)
206



I-25

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Three months ended June 30, 2018
 
(in millions)
Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations

Consolidated-
QVC, Inc. and
subsidiaries

Net revenue
$
1,460

691

704

(299
)
2,556

Operating costs and expenses
 
 
 
 
 
Cost of goods sold (exclusive of depreciation and amortization shown separately below)
858

335

433

(37
)
1,589

Operating
97

123

70

(81
)
209

Selling, general and administrative, including transaction related costs and stock-based compensation
273

62

116

(181
)
270

Depreciation
17

9

17


43

Amortization
19

34

2


55


1,264

563

638

(299
)
2,166

Operating income
196

128

66


390

Other (expense) income:
 
 
 
 
 
Equity in losses of investee


(2
)

(2
)
Interest expense, net
(57
)
(9
)
(2
)

(68
)
Foreign currency gain (loss)
6


(4
)

2

Intercompany interest (expense) income
(8
)
38

(30
)



(59
)
29

(38
)

(68
)
Income before income taxes
137

157

28


322

Income tax expense
(38
)
(27
)
(13
)

(78
)
Equity in earnings of subsidiaries, net of tax
145

9


(154
)

Net income
244

139

15

(154
)
244

Less net income attributable to the noncontrolling interest
(11
)

(11
)
11

(11
)
Net income attributable to QVC, Inc. stockholder
$
233

139

4

(143
)
233




I-26

QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)


Condensed Consolidating Statements of Operations
Six months ended June 30, 2019
 
(in millions)
Parent
issuer-
QVC, Inc.

Combined
subsidiary
guarantors

Combined
non-guarantor
subsidiaries

Eliminations

Consolidate