Qurate Retail, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Information About Qurate Retail's Operating Segments

Information About Qurate Retail's Operating Segments

12 Months Ended

Dec. 31, 2018

Information About Liberty's Operating Segments

Information About Qurate Retail's Operating Segments

(16) Information About Qurate Retail's Operating Segments

Qurate Retail, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video and on-line commerce industries. Qurate Retail identifies its reportable segments as (A) those consolidated subsidiaries that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of Qurate Retail's annual pre-tax earnings. The segment presentation for prior periods has been conformed to the current period segment presentation.

Qurate Retail evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per customer equivalent. In addition, Qurate Retail reviews nonfinancial measures such as unique website visitors, conversion rates and active customers, as appropriate.

Qurate Retail defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). Qurate Retail believes this measure is an important indicator of the operational strength and performance of its businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, certain purchase accounting adjustments, separately reported litigation settlements, transaction related costs (including restructuring, integration, and advisory fees), and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Qurate Retail generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.

During the second quarter of 2018 the Company changed its reportable segments to include QVC U.S. and QVC International, and presented prior period information to conform with this change. Previously, QVC was considered one reportable segment. As a result of the GCI Liberty Split-Off, and the related management transitions, a new Chief Operating Decision Maker (“CODM”) was identified, and the information that the new CODM reviews is aggregated differently than it was prior to the Transactions.

For the year ended December 31, 2018, Qurate Retail has identified the following consolidated subsidiaries as its reportable segments:

QVC U.S. and QVC International – QVC markets and sells a wide variety of consumer products in the United States and several foreign countries, primarily by means of its televised shopping programs and via the Internet through its domestic and international websites and mobile applications.

HSN – consolidated subsidiary that markets and sells a wide variety of consumer products primarily in the U.S. by means of its televised shopping programs and via the Internet and mobile transactions through its domestic websites.

zulily – consolidated subsidiary that markets and sells unique products in the U.S. and several foreign countries through flash sales events, primarily through its desktop and mobile websites and mobile applications.

Qurate Retail's operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segments that are also consolidated subsidiaries are the same as those described in the Company's summary of significant accounting policies.

Performance Measures


	Years ended December 31,
	2018			2017		2016
			Adjusted		Adjusted		Adjusted
	Revenue		OIBDA	Revenue	OIBDA	Revenue	OIBDA
	amounts in millions
QVC U.S.	$	6,349	1,417	6,140	1,455	6,120	1,435
QVC International		2,738	429	2,631	451	2,562	405
HSN		2,202	213	NA	NA	NA	NA
zulily		1,817	108	1,613	91	1,547	112
Corporate and other		973	(13)	23	(47)	428	(13)
Inter-segment eliminations		(9)	—	(3)	—	(10)	—
Consolidated Qurate Retail	$	14,070	2,154	10,404	1,950	10,647	1,939

Other Information


	December 31, 2018				December 31, 2017
			Investments			Investments
	Total		in	Capital	Total	in	Capital
	assets		affiliates	expenditures	assets	affiliates	expenditures
	amounts in millions
QVC U.S.	$	9,900	38	143	9,544	40	116
QVC International		2,154	—	67	2,121	—	36
HSN		2,917	—	18	2,798	—	—
zulily		2,199	—	24	2,323	—	49
Corporate and other		671	97	23	7,336	269	3
Inter-group eliminations		—	—	—	—	—	—
Consolidated Qurate Retail	$	17,841	135	275	24,122	309	204

The following table provides a reconciliation of consolidated segment Adjusted OIBDA to operating income and earnings (loss) from continuing operations before income taxes:


	Years ended December 31,
	2018		2017	2016
	amounts in millions
Consolidated segment Adjusted OIBDA	$	2,154	1,950	1,939
Stock-based compensation		(88)	(123)	(97)
Depreciation and amortization		(637)	(725)	(874)
Transaction related costs		(72)	(59)	—
Impairment of intangible assets and long lived assets		(33)	—	—
Operating income		1,324	1,043	968
Interest expense		(381)	(355)	(363)
Share of earnings (loss) of affiliates, net		(162)	(200)	(68)
Realized and unrealized gains (losses) on financial instruments, net		76	145	414
Gains (losses) on transactions, net		1	410	9
Tax sharing income (expense) with GCI Liberty, Inc.		32	—	—
Other, net		(7)	7	131
Earnings (loss) from continuing operations before income taxes	$	883	1,050	1,091

Revenue by Geographic Area

Revenue by geographic area based on the location of customers is as follows:


	Years ended December 31,
	2018		2017	2016
	amounts in millions
United States	$	11,233	7,684	7,979
Japan		947	934	900
Germany		943	899	866
Other foreign countries		947	887	902
	$	14,070	10,404	10,647

Long-lived Assets by Geographic Area


	December 31,
	2018		2017
	amounts in millions
United States	$	869	895
Japan		165	143
Germany		161	164
Other foreign countries		127	139
	$	1,322	1,341